Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the...

87
Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 1 of 77 Utmost Life and Pensions Limited SOLVENCY AND FINANCIAL CONDITION REPORT 2019

Transcript of Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the...

Page 1: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 1 of 77

Utmost Life and Pensions Limited

SOLVENCY

AND

FINANCIAL CONDITION REPORT

2019

Page 2: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 2 of 77

SOLVENCY AND FINANCIAL CONDITION REPORT 2019

Contents

EXECUTIVE SUMMARY .............................................................................................................. 4

STATEMENT OF DIRECTORS’ RESPONSIBILITIES ....................................................................... 8

AUDITORS’ REPORT AND OPINION .......................................................................................... 9

SOLVENCY AND FINANCIAL CONDITION REPORT 2019 ..................................................... 13

A. Business AND Performance ....................................................................................................... 13

A.1 Business .................................................................................................................................... 13

A.2 Underwriting Performance ................................................................................................. 17

A.3 Investment Performance .................................................................................................... 17

A.4 Performance of Other Activities ....................................................................................... 18

A.5 Any Other Material Activities ............................................................................................. 19

B. System of Governance .............................................................................................................. 20

B.1 General Information ............................................................................................................. 20

B.2 Fit and Proper Requirements ............................................................................................. 27

B.3 Risk Management System................................................................................................... 28

B.4 Own Risk and Solvency Assessment ................................................................................ 30

B.5 Internal Control System ....................................................................................................... 31

B.6 Internal Audit Function ........................................................................................................ 32

B.7 Actuarial Function ................................................................................................................ 34

B.8 Assessment of Governance ............................................................................................... 35

B.9 Other Information ................................................................................................................. 36

C. Risk Profile ..................................................................................................................................... 38

C.1 Underwriting Risk .................................................................................................................... 39

C.2 Market Risk .............................................................................................................................. 42

C.3 Credit Risk ................................................................................................................................ 44

C.4 Operational Risk .................................................................................................................... 47

C.5 Liquidity Risk ............................................................................................................................ 48

C.6 Stress and Scenario Testing Results ................................................................................... 49

C.7 Prudent Person Principle: investments ............................................................................. 50

C.8 Any Other Material Information ........................................................................................ 51

D. Valuation for Solvency Purposes ............................................................................................. 52

D.1 Assets Valuation Basis, Methods and Main Assumptions ........................................... 52

D.2 Technical Provisions .............................................................................................................. 57

D.3 Other Liabilities ....................................................................................................................... 64

D.4 Alternative Methods for Valuation ................................................................................... 66

Page 3: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 3 of 77

D.5 Any Other Information ......................................................................................................... 66

E. Capital Management ................................................................................................................ 67

E.1 Own Funds .............................................................................................................................. 67

E.2 Solvency Capital Requirement and Minimum Capital Requirement .................... 70

E.3 Use of the Duration-based Equity Sub-module in the Calculation of the Solvency Capital Requirement .............................................................................................................................. 71

E.4 Differences between the Standard Formula and any Internal Model used ........ 71

E.5 Non-compliance with the Minimum Capital Requirement and Non-compliance

with the Solvency Capital Requirement ......................................................................... 71

E.6 Any Other Information ......................................................................................................... 72

Appendix A: Valuation Basis ............................................................................................................ 73

Appendix B: Quantitative Reporting Templates ........................................................................... 75

Page 4: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 4 of 77

SOLVENCY AND FINANCIAL CONDITION REPORT 2019

EXECUTIVE SUMMARY

INTRODUCTION

This report is the Solvency and Financial Condition Report (“SFCR”) of Utmost Life and Pensions (“the

Company”) for the reporting period ended 31 December 2019 (“the Report”). The Report has been

prepared in accordance with the Solvency II Regulations governing insurance group reporting and

guidance from the European Insurance and Occupational Pensions Authority (“EIOPA”) and the

Prudential Regulatory Authority (“PRA”),

The Company is part of the Utmost Group of Companies, a specialist life insurance group founded in

2013, with the aim of acquiring and managing life insurance business across the UK and Europe with

c£36bn assets under administration and more than 600,000 customers. The Company is a wholly-owned

subsidiary of Utmost Life and Pension Holdings Limited (“Utmost Holdings”), whose other subsidiaries

include Utmost Life and Pensions Services Limited (“Utmost Services”). Utmost Services employs all staff

for the Utmost Holdings group of companies.

The principal activity of the Company is the provision of life and pensions policies by pursuing its strategy

of acquiring and consolidating businesses in the UK to deliver a safe home for its customers through our

strong capital position and efficient operational management. The Company was formed on 12 January

2017 and acquired the business of Reliance Mutual Insurance Society on 1 April 2018. On 1 January 2020,

the Company acquired the majority of the business of Equitable Life Assurance Society (“Equitable Life”)

through a Part VII Transfer sanctioned by the High Court. On this date, Equitable Life became a subsidiary

of the Company. As a result, the Company now has circa.390000 customers and £8.2bn of assets.

The Company has no external new business, and the only new business written in 2019 were annuities

sold to existing customers on the vesting of their pension savings contracts (including contracts with

Guaranteed Annuity Options (“GAOs”)). The vast majority of business has been written in the UK.

The SFCR provides details of the Company business and its performance, Systems of Governance, risk

profile, and valuation for solvency purposes and capital management for the financial year ended 31

December 2019.

BUSINESS AND PERFORMANCE

Delivering the strategy

The Company’s vision is to become a successful medium-sized UK life and pension consolidator, and its

mission statement is to improve customer and shareholder outcomes by looking after the interests of all

our customers; both new from acquisitions and longstanding.

In conjunction with the Utmost Group of Companies, the Company will continue to look for further

acquisitions. We believe that there are opportunities as Life and Pensions companies in the UK consider

their future operating models, and we have the ability to provide a variety of solutions to meet these

needs. The Company continues to actively evaluate further acquisition opportunities.

Throughout 2019, the Company actively executed its strategy, primarily by focusing upon the completion

of the Equitable Life acquisition and creating the infrastructure required for a successful integration.

On 15 June 2018, the Company announced that it had signed an agreement with Equitable Life under

which it was proposed that Equitable Life and its business would transfer to the Company.

The majority of Equitable Life’s customers are based in the UK, but a small number of unit-linked and with-

profits customers, sold under German and Irish law, are based in Ireland and Germany. This German and

Irish business is being retained in Equitable Life and Equitable Life became a subsidiary of the Company

on 1 January 2020.

Page 5: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 5 of 77

In preparation for the acquisition, Equitable Life undertook a Scheme of Arrangement in accordance

with Part 26 of the Companies Act 2006 (“the Scheme”). For the Scheme to be effective, eligible with-

profits policyholders were required to vote in favour of the Scheme. Voting took place at a policyholder

meeting and EGM on 1 November 2019, and the results were overwhelmingly in favour of the proposed

changes.

The High Court considered the Scheme and Transfer at two hearings:

A Convening/Directions hearing to determine legal matters, including confirmation that with-profits

policyholders were able to vote as a single class; and

A Sanctions hearing that approved the Scheme and Part VII Transfer.

The Scheme was sanctioned by the UK Court on 4 December 2019 with an effective date of 1January

2020, at which point eligible with-profits policies were converted to unit-linked policies with no investment.

The proposal subsequently transferred all policies (other than those covered by German and Irish law) to

Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the

Transfer”). On 1 January 2020, the Company became the sole Member of Equitable Life.

In preparation for the Equitable Life transfer, on 16 December 2019, the Company issued an additional

£112.6m of ordinary share capital to Utmost Holdings, increasing total issued share capital from £30m to

£142.6m. On the same date, the Company repaid its £35m term loan facility from Utmost Holdings and

new debt of £60m was drawn down. The new loan, which matures on 9 December 2030, qualifies as Tier

2 capital under Solvency II reporting guidelines.

Approval was sought from the PRA in respect of the loan arrangements qualifying as Tier 2 debt, and this

was received on 19 November 2019. On 15 November 2019, the PRA approved the change in control of

Equitable Life to the Company on completion of the transaction.

On 1 January 2020, Equitable Life transferred circa. £6.3bn of funds under management to the Company,

with £79m assets being retained within Equitable Life for the circa. 3,000 German and Irish policyholders,

with Utmost as sole Member, and all employees of Equitable Life were transferred to Utmost Services,

under Transfer of Undertaking (Protection of Employment) regulations (TUPE).

Product development and marketing

During the first quarter of 2019, the Utmost Group reviewed its brand to consider how to better support

the Group’s strategy going forward. As a result, in March 2019, the Company formally changed its name

to Utmost Life and Pensions Limited and launched its new website (utmost.co.uk). As the Company grows

it will continue to invest in enhancing its product offering. During 2019, resources were focused on this

area, with a view in particular to launching a flexible drawdown product early in 2020. At launch, this

product will only be available to existing customers of the Company.

Investment management changes

To support the continuing growth of the Company, an investment manager selection process was

undertaken during the latter part of 2018 to select a manager for the combined Utmost Life and

Pensions/Equitable Life unit-linked business going forwards. On 27 March 2019, J.P. Morgan Asset

Management was formally approved by the Board as the new investment manager. The Company

migrated the unit-linked funds of the Company to J.P. Morgan during the fourth quarter of 2019, retaining

Schroder’s for the unit-linked property funds.

During 2019, J.P. Morgan also worked with the Company and Equitable Life to develop a suitable unit-

linked proposition in preparation for policyholders converting from with-profits to unit-linked in January

2020. Goldman Sachs Asset Management have been retained as manager for the non-linked business.

Page 6: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 6 of 77

Business performance

Since the transfer of business from Reliance Mutual Insurance Society (RTW) Ltd (“RMIS”) ) the Company

has focused on the efficient management of the business with a specific focus on the management of

the investment portfolio backing the annuity liabilities and on delivering service to customers in a cost-

effective manner. During 2019, the Company restructured the assets in the investment portfolio backing

the annuity liabilities to reduce the capital requirements arising from credit risk, leading to an increase in

the Surplus over the Solvency Capital Requirement (“SCR”) of £7.1m.

Operating profit and loss

The operating Profit and Loss for the year reflects an improvement from a post-tax profit of £4.8m in 2018

to £6.0m in 2019. The key drivers of this net change of £1.2m were, as follows:

An increase in investment returns driven by positive stock market returns;

Partly offset by increases in Technical Provisions and reinsurance reserves driven by change in

assumptions; and

A small increase in expenses driven by costs relating to the acquisition of Equitable Life.

Capital position

The Company maintained capital sufficient to meet the SCR throughout the period. As at 31 December

2019, the Company had a Solvency Coverage Ratio of 467%; being the percentage value of its eligible

Own Funds compared to the SCR of £54m, (see section D).

Matching Adjustment

The Company has two Matching Adjustment (“MA”) portfolios that back some of the annuity

business and Funeral Plan policies. The MA enables the Company to benefit from a higher

discount rate that reduces the value of the liabilities. The Company Solvency Coverage Ratio is

467%, which includes the benefit of the MA. Without the MA, the Solvency Coverage Ratio would

be 379%.

Transitional Measures

The Company does not apply the transitional risk-free interest rate term structure. The Company

does apply a Transitional Measure on the Technical Provisions (“TMTP”), which increases Own

Funds by £31.2m. The Company Solvency Coverage Ratio of 467% reflects the TMTP. Without the

TMTP, the Solvency Coverage Ratio would be 409%. On 1 January 2020, post the acquisition of

Equitable Life, the benefit of the TMTP will be removed.

The following table sets out the capital requirements over the reporting period allowing for the eligibility

restrictions.

SII Pillar 1 Solvency (£ millions) 2019 2018 Change

Own Funds 303 134 169

Restriction to Own Funds (18) (16) (2)

Sub-Fund capital support (33) (2) (30)

Eligible Own Funds 251 115 136

SCR (54) (65) 11

Excess Available Capital 198 50 147

Solvency Ratio 467% 178% 289%

MCR (20) (21) 1

Unused FDB/Restricted surplus 37 25 12

Page 7: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 7 of 77

Strategic risk

Whilst the Company’s strategy is to acquire businesses, the Company has also considered the

implications of the strategy not succeeding. If this were the case, the Company would look at other ways

of driving down unit costs. This would include outsourcing, transferring the business to other interested

parties or looking for other expense reductions. The expense provision within the reserves has taken due

regard to all of these other factors.

Customers

In line with our mission statement, customer interests, from both existing and acquired businesses, are at

the forefront of the Company’s business model.

The Company’s strategy is to consolidate books of business, which inherently implies servicing long-

standing customers with a focus on meeting customer needs, delivering on the commitments to

customers and providing or taking opportunities to enhance returns to customers where possible as well

as sound financial management.

A key objective for the Company is to achieve good customer outcomes and capital strength, which

provides security of customer benefits.

Risk and governance framework

The Company utilises a ‘three lines of defence’ model for the management of its risks. This model is

operated through the Board, its Committees, and management committees within the Company.

The Company operates within a dynamic business environment, which is continually influenced by the

external environment, including economic, political and industrial, competitive, demographic,

health/lifestyle, legal and regulatory factors. In operating within this environment, the Company is

exposed to risks. Part of the Company’s success is dependent on managing these risks appropriately.

The Company’s Enterprise Risk Management Framework (“ERM”) provides the framework for the

management of these risks, and supports attainment of the Company’s strategic objectives. The ERM is

designed to support the identification of all material risks, including medium- and long-term risks. The ERM

Framework further sets out the Company’s overall strategy towards and appetite for risk, the risk

governance and management processes, and the Company’s approach to risk classification,

monitoring and analysis.

As part of ERM Framework mechanisms, risks are quantified and are subject to stress test and scenarios

analysis. Non-quantifiable risks are fully covered within the framework and are monitored and managed

through the Company’s risk reporting and risk governance structures.

The four principal risks to the business are detailed in the table below.

Underwriting risk Primarily in the form of longevity, expense and persistency risks and the take-

up of guaranteed options.

Market risk Primarily in the form of interest rate and equity risk.

Credit risk Primarily from spread risk on corporate bonds

Operational risk The Company has identified 11 operational risk categories: business

operations; financial/actuarial; legal/ regulatory; outsourcing/investment;

governance; people; IT; cyber security; financial crime; and external.

The Company’s Systems of Governance and risk profile are set out in sections B and C of this report.

Page 8: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 8 of 77

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

Directors’ Statement

Approval by the Board of Directors of the Solvency and Financial Condition Report for the period ending

31 December 2019

We certify that:

1. The Solvency and Financial Condition Report (SFCR) has been properly prepared in all material

respects in accordance with the PRA rules and Solvency II Regulations; and

2. We are satisfied that:

a. Throughout the financial year in question, the Company has complied in all material

respects with the requirements of the PRA rules and Solvency II Regulations as

applicable; and

b. It is reasonable to believe that, at the date of the publication of the SFCR, the Company

has continued so to comply, and will continue so to comply in future.

On behalf of the Board of Utmost Life and Pensions Limited

By order of the Board

Stephen Shone

Chief Executive Officer

16 April 2020

Page 9: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 9 of 77

AUDITORS’ REPORT AND OPINION

Report of the external independent auditors to the Directors of Utmost Life and Pensions Limited

(‘the Company’) pursuant to Rule 4.1 (2) of the External Audit Part of the PRA Rulebook

applicable to Solvency II firms

Report on the Audit of the relevant elements of the Solvency and Financial Condition Report

Opinion

Except as stated below, we have audited the following documents prepared by the Company as at 31

December 2019:

● The ‘Valuation for solvency purposes’ and ‘Capital Management’ sections of the Solvency and

Financial Condition Report of the Company as at 31 December 2019, (‘the Narrative

Disclosures subject to audit’); and

● Company templates S.02.01.02, S.12.01.02, S.22.01.21, S.23.01.01, S.25.01.21 and S.28.01.01 (‘the

Templates subject to audit’).

The Narrative Disclosures subject to audit and the Templates subject to audit are collectively referred to

as the ‘relevant elements of the Solvency and Financial Condition Report’.

We are not required to audit, nor have we audited, and as a consequence do not express an opinion

on the Other Information which comprises:

● The ‘Summary’, ‘Business and performance’, ‘System of governance’ and ‘Risk profile’

elements of the Solvency and Financial Condition Report;

● Company templates S.05.01.02;

● Information calculated in accordance with the previous regime used in the calculation of the

transitional measure on technical provisions, and as a consequence all information relating to

the transitional measure on technical provisions as set out in the Appendix to this report; and

● The written acknowledgement by management of their responsibilities, including for the

preparation of the Solvency and Financial Condition Report (‘the Responsibility Statement’).

To the extent the information subject to audit in the relevant elements of the Solvency and Financial

Condition Report includes amounts that are totals, sub-totals or calculations derived from the Other

Information, we have relied without verification on the Other Information.

In our opinion, the information subject to audit in the relevant elements of the Solvency and Financial

Condition Report of the Company as at 31 December 2019 is prepared, in all material respects, in

accordance with the financial reporting provisions of the PRA Rules and Solvency II regulations on which

they are based, as supplemented by supervisory approvals.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK))

including ISA (UK) 800 and ISA (UK) 805, and applicable law. Our responsibilities under those standards

are further described in the Auditors’ Responsibilities for the Audit of the relevant elements of the Solvency

and Financial Condition Report section of our report. We are independent of the Company in

accordance with the ethical requirements that are relevant to our audit of the Solvency and Financial

Condition Report in the UK, including the FRC’s Ethical Standard as applied to public interest entities, and

we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that

the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Page 10: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 10 of 77

Report on the Audit of the relevant elements of the Solvency and Financial Condition Report

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us

to report to you where:

● the directors’ use of the going concern basis of accounting in the preparation of the Solvency

and Financial Condition Report is not appropriate; or

● the directors have not disclosed in the Solvency and Financial Condition Report any identified

material uncertainties that may cast significant doubt about the Company’s ability to

continue to adopt the going concern basis of accounting for a period of at least twelve

months from the date when the Solvency and Financial Condition Report is authorised for

issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee

as to the Company’s ability to continue as a going concern.

Emphasis of Matter - Basis of Accounting

We draw attention to the ‘Valuation for solvency purposes’ and ‘Capital Management’ sections of the

Solvency and Financial Condition Report, which describe the basis of accounting. The Solvency and

Financial Condition Report is prepared in compliance with the financial reporting provisions of the PRA

Rules and Solvency II regulations, and therefore in accordance with a special purpose financial reporting

framework. The Solvency and Financial Condition Report is required to be published, and intended users

include but are not limited to the Prudential Regulation Authority. As a result, the Solvency and Financial

Condition Report may not be suitable for another purpose. Our opinion is not modified in respect of this

matter.

Other Information

The Directors are responsible for the Other Information.

Our opinion on the relevant elements of the Solvency and Financial Condition Report does not cover the

Other Information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the Solvency and Financial Condition Report, our responsibility is to read

the Other Information and, in doing so, consider whether the Other Information is materially inconsistent

with the relevant elements of the Solvency and Financial Condition Report, or our knowledge obtained

in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies

or apparent material misstatements, we are required to determine whether there is a material

misstatement in the relevant elements of the Solvency and Financial Condition Report or a material

misstatement of the Other Information. If, based on the work we have performed, we conclude that

there is a material misstatement of this Other Information, we are required to report that fact. We have

nothing to report in this regard.

Page 11: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 11 of 77

Report on the Audit of the relevant elements of the Solvency and Financial Condition Report

Responsibilities of Directors for the Solvency and Financial Condition Report

The Directors are responsible for the preparation of the Solvency and Financial Condition Report in

accordance with the financial reporting provisions of the PRA rules and Solvency II regulations, which

have been supplemented by the approvals made by the PRA under the PRA Rules and Solvency II

regulations on which they are based, as detailed below:

● Approval to use the matching adjustment in the calculation of the technical provisions;

● Approval to use the transitional measure on technical provisions; and

● Approval to apply SII regulation as a subsidiary with a non-EEA holding company.

The Directors are also responsible for such internal control as they determine is necessary to enable the

preparation of a Solvency and Financial Condition Report that is free from material misstatement,

whether due to fraud or error.

Auditors’ Responsibilities for the Audit of the relevant elements of the Solvency and Financial Condition

Report

It is our responsibility to form an independent opinion as to whether the information subject to audit in

the relevant elements of the Solvency and Financial Condition Report is prepared, in all material respects,

in accordance with financial reporting provisions of the PRA Rules and Solvency II regulations on which

they are based.

Our objectives are to obtain reasonable assurance about whether the relevant elements of the Solvency

and Financial Condition Report are free from material misstatement, whether due to fraud or error, and

to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,

but it is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a

material misstatement when it exists. Misstatements can arise from fraud or error and are considered

material if, individually or in the aggregate, they could reasonably be expected to influence the decision

making or the judgement of the users taken on the basis of the Solvency and Financial Condition Report.

A further description of our responsibilities for the audit is located on the Financial Reporting Council’s

website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

This report, including the opinion, has been prepared for the Board of Directors of the Company in

accordance with External Audit rule 2.1 of the Solvency II firms Sector of the PRA Rulebook and for no

other purpose. We do not, in providing this report, accept or assume responsibility for any other purpose

or to any other party save where expressly agreed by our prior consent in writing.

Report on Other Legal and Regulatory Requirements

In accordance with Rule 4.1 (3) of the External Audit Part of the PRA Rulebook for Solvency II firms we are

also required to consider whether the Other Information is materially inconsistent with our knowledge

obtained in the audit of the Company’s statutory financial statements. If, based on the work we have

performed, we conclude that there is a material misstatement of this other information, we are required

to report that fact. We have nothing to report in this regard.

PricewaterhouseCoopers LLP

Chartered Accountants

7 MoreLondon Riverside

SE1 2RT

April 2020

Page 12: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 12 of 77

Appendix – relevant elements of the Solvency and Financial Condition Report that are not subject to audit

The relevant elements of the Solvency and Financial Condition Report that are not subject to audit

comprise:

The following elements of template S.12.01.02

o Rows R0110 to R0130 – Amount of transitional measure on technical provisions

The following elements of template S.17.01.02

o Rows R0290 to R0310 – Amount of technical measure on technical provisions

The following elements of template S.22.01.21

o Column C0030 – Impact of transitional on technical provisions

Elements of the Narrative Disclosures subject to audit identified as ‘unaudited’.

Page 13: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 13 of 77

SOLVENCY AND FINANCIAL CONDITION REPORT 2019

A. BUSINESS AND PERFORMANCE

A.1 Business

The Company is part of the Utmost Group of Companies, a specialist life insurance group founded in

2013, with the aim of acquiring and managing life insurance business across the UK and Europe with

c£36bin assets under administration and more than 600,000 customers. The Company is a wholly-owned

subsidiary of Utmost Life and Pension Holdings Limited (“Utmost Holdings”), whose other subsidiaries

include Utmost Life and Pensions Services Limited (“Utmost Services”). Utmost Services employs all staff

for the Utmost Holdings group of companies.

The principal activity of the Company is the provision of life and pensions policies by pursuing its strategy

of acquiring and consolidating businesses in the UK to deliver a safe home for its customers through our

strong capital position and efficient operational management. The Company was formed on 12 January

2017 and acquired the business of Reliance Mutual Insurance Society on 1 April 2018. The ultimate parent

company that is registered in the UK is UUG Holdings (No 1) Limited. The ultimate parent undertaking of

the Company is OCM LCCG Holdings Limited: a company incorporated in the Cayman Islands.

Legal form

The Company is a limited liability company incorporated in January 2017 and domiciled in England and

Wales (Registration No.10559664), and its registered office address is Utmost House, 6 Vale Avenue,

Tunbridge Wells, Kent, TN1 1RG. The Company is regulated by both the Financial Conduct Authority

(“FCA”) and PRA, and authorised by the PRA.

A.1.1 Supervisory authorities and external Auditors

Supervisory Authority External Auditors

Prudential Regulation Authority

Bank of England

20 Moorgate

London

EC2R 8AH

PricewaterhouseCoopers LLP

7 More London Riverside

London

SE1 2RT

Financial Conduct Authority

12 Endeavour Square

London

E20 1JN

Page 14: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 14 of 77

A.1.2 Group structure

The structure sets out the principal companies with a material relationship with the Company. The

Company is the parent of RMIS (RTW) Limited, formerly Reliance Mutual Insurance Society Limited, which,

following the transfer of business to the Company on 1 April 2019, does not actively trade.

A.1.3 Lines of business

The vast majority of the Company’s in-force business has been written in the UK.

The Company is sub-divided into a number of distinct sub-funds, which are: the Non-Profit Fund (“NPF”),

which includes shareholder funds and the unit-linked business; and four separate With-Profits Sub-Funds

(“WPSFs”) (WPSF1, 2, 4 and 6), primarily with-profits business. The NPF contains two MA portfolios of assets

used to back immediate annuities and funeral plans.

The Company has no external new business, and the only new business written is annuities sold to existing

policyholders on the vesting of their pension savings contracts (including contracts with GAOs).

Page 15: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 15 of 77

The following table summarises the Company’s material lines of business as at 31 December 2019.

Line of Business Contract Type Product(s)

% of

Technical

Provisions

Unit-Linked and Index-

Linked Insurance Unit-Linked Life and Pensions Savings 42%

Other Life Insurance Non-Linked Annuities 35%

Other Life Insurance Non-Linked Funeral Plan 5%

Other Life Insurance Non-Linked Term and Endowment Assurances 8%

Insurance with profit

participation

Conventional

With-Profits

Endowment Assurances, Annuities and

other 10%

The Company also has small amounts of in-force unitised with-profits business, unit-linked annuities, non-

linked deferred annuities, and health insurance business.

A.1.4 Significant events

A.1.4.1 Delivering the strategy

The Company’s vision is to become a successful medium-sized UK Life and Pensions consolidator, and its

mission statement is to improve customer and shareholder outcomes by looking after the interests of all

its customers; both new from acquisitions and longstanding.

In conjunction with the Utmost Group of Companies, the Company will continue to look for further

acquisitions. It believes that there are opportunities as Life and Pensions companies in the UK consider

their future operating models and has the ability to provide a variety of solutions to meet these needs.

The Company continues to actively evaluate further acquisition opportunities.

Throughout 2019, the Company actively executed its strategy, primarily by focusing upon the completion

of the Equitable Life acquisition and creating the infrastructure required for a successful integration.

On 15 June 2018, the Company announced that it had signed an agreement with Equitable Life under

which it was proposed that Equitable Life and its business would transfer to the Company. The majority

of these customers are based in the UK, but a small number of unit-linked and with-profits customers, sold

under German and Irish law, are based in Ireland and Germany. This German and Irish business is being

retained in Equitable Life, and Equitable Life became a subsidiary of the Company on 1 January 2020.

In preparation for the acquisition, Equitable Life undertook a Scheme of Arrangement in accordance

with Part 26 of the Companies Act 2006 (“the Scheme”). For the Scheme to be effective, eligible with-

profits policyholders were required to vote in favour of the Scheme. Voting took place at a policyholder

meeting and EGM on 1 November 2019, and the results were overwhelmingly in favour of the proposed

changes.

The High Court considered the Scheme and Transfer at two hearings:

• A Convening/Directions hearing to determine legal matters, including confirmation that with-

profits policyholders were able to vote as a single class; and

• A Sanctions hearing that approved the Scheme and Part VII Transfer.

The Scheme was sanctioned by the UK Court on 4 December 2019 with an effective date of 1January

2020, at which point eligible with-profits policies were converted to unit-linked policies with no investment

guarantees.

Page 16: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 16 of 77

The proposal subsequently transferred all policies (other than those covered by German and Irish law) to

Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the

Transfer”). On 1 January 2020, the Company became the sole Member of Equitable Life.

In preparation for the Equitable Life transfer, on 16 December 2019, the Company issued an additional

£112.6m of ordinary share capital to Utmost Holdings, increasing total issued share capital from £30m to

£142.6m. On the same date, the Company repaid its £35m term loan facility from Utmost Holdings and

new debt of £60m was drawn down. The new loan, which matures on 9 December 2030, qualifies as Tier

2 capital under Solvency II reporting guidelines.

Approval was sought from the PRA in respect of the loan arrangements qualifying as Tier 2 debt, and this

was received on 19 November 2019. On 15 November 2019, the PRA approved the change in control of

Equitable Life to the Company on completion of the Transfer.

On 1 January 2020, Equitable Life transferred circa. £6.3bn of funds under management to the Company,

with £79m assets being retained within Equitable Life for the circa. 3,000 German and Irish policyholders,

with Utmost as sole Member, and all employees of Equitable Life transferred to Utmost Services under

TUPE regulations.

A.1.5.2 Rebranding activity

During the first quarter of 2019, the Utmost Group reviewed its brand to consider how to better support

the Group’s strategy going forward. As a result, in March 2019, the Company formally changed its name

to Utmost Life and Pensions Limited and launched its new website (utmost.co.uk).

A.1.5.3 Product development and marketing

As the Company grows it will continue to invest in enhancing its product offering. During 2019, resources

were focused on this area, with a view in particular to launching a Flexible Drawdown Product early in

2020. At launch, this product will only be available to existing customers of the Company.

A.1.5.4 Investment management changes

To support the continuing growth of the Company, an investment manager selection process was

undertaken during the latter part of 2018 to select a manager for the combined Utmost Life and

Pensions/Equitable Life unit-linked business going forwards. On 27 March 2019, J.P. Morgan Asset

Management was formally approved by the Board as the new investment manager. The Company

migrated the unit-linked funds of the Company to J.P. Morgan during the fourth quarter of 2019, retaining

Schroder’s for the unit-linked property funds. During 2019, J.P. Morgan also worked with the Company

and Equitable Life to develop a suitable unit-linked proposition in preparation for policyholders

converting from with profits to unit-linked in January 2020. Goldman Sachs Asset Management have

been retained as manager for the non-linked business.

Page 17: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 17 of 77

A.1.5 Business and Performance

The Company prepares its Annual Report and Financial Statements on a UK Generally Accepted

Accounting Principles (“GAAP”) statutory basis in accordance with FRS 102 and FRS 103. These were

approved by the Board on 8 April 2020 but, for the purposes of this document, financial performance is

presented on a Solvency II basis; the changes for which are detailed and explained within this report.

The three most significant differences between the Solvency II reporting and UK GAAP statutory basis are

as follows :

Actuarial liabilities are calculated on a best estimate basis for Solvency II and a prudent basis for

UK GAAP;

Intangible assets including goodwill and the present value of acquired in-force business have no

value for Solvency II reporting; and

Tier 2 debt capital is treated as a liability for UK GAAP reporting.

The Company’s Solvency Coverage Ratio at 31 December 2019 was 467%, which was successfully ahead

of the Board’s stated risk appetite of 150%. The table below analyses solvency coverage of the Company

and the NPF.

SII Pillar 1 Solvency (£ millions) NPF Company Company

2019 2019 2018

Own Funds (Unrestricted) 284.5 302.7 133.6

Restriction on Own Funds (33.1) (51.3) (18.6)

Own Funds 251.4 251.4 115.0

SCR (after loss absorbency) (52.7) (53.8) (64.6)

Sub-fund capital support (1.1) - 0.0

Excess Available Capital (after capital support) 197.6 197.6 50.4

Solvency Coverage Ratio 467% 178%

Minimum Capital Requirement (“MCR”)1

- 20.4 21.1

Unused Future Discretionary Benefits (“FDBs”)2

- 36.9 24.9

A.2 Underwriting Performance

Due to the nature of the Company’s unit-linked, annuities and with-profits business, an analysis of

underwriting performance does not provide meaningful information without netting off the investment

performance and, for this reason, it is not the way in which the Company manages the business. Financial

performance focuses on the movement in the Company’s economic value and solvency ratio.

The Company wrote £7.4m (2018: £7.4m)of new business in respect of annuties sold to existing

policyholders on the vesting of their pension savings contracts (including contracts with GAOs). The

Company has no other new business.

A.3 Investment Performance

Investment return comprises investment income, including realised investment gains and losses and

movements in unrealised gains and losses on investments designated as fair value through profit or loss,

net of investment expenses and charges.

Interest income is recognised as it accrues, taking into account the effective yield on investments.

Dividends are included as investment income on the date when the right to receive has been

established.

Unrealised gains and losses on investments represent the difference between the valuation at the date

of the Statement of financial position and their purchase price or, if they have been previously valued,

Page 18: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 18 of 77

their valuation at the date of the last Statement of financial position. The movement in unrealised gains

and losses recognised in the year also includes the reversal of unrealised gains and losses recognised in

earlier accounting periods in respect of investment disposals in the current period. Upon disposal or

impairment, accumulated unrealised gains and losses are transferred from other comprehensive income

to the income statement as realised gains or losses.

The Company’s asset portfolio is invested to generate competitive investment returns whilst remaining

within the Company’s appetite for market and credit risk.

An analysis of the net investment return by asset class is presented in the table below.

Year End 2019:

Debt Securities Equity

securities

Other Financial

Investments Total

£m £m £m £m

Dividends - - 12.8 12.8

Interest 29.1 - - 29.1

Net realised (losses) / gains (0.7) - 46.4 45.7

Net unrealised (losses) 45.9 (0.1) 27.8 73.6

74.3 (0.1) 87.0 161.2

Year End 2018:

Debt Securities Equity

securities

Other Financial

Investments Total

£m £m £m £m

Dividends - 0.2 9.0 9.2

Interest 23.8 - 0.7 24.5

Net realised (losses) / gains 12.5 (0.1) 6.6 19.0

Net unrealised (losses) (35.0) (0.2) (33.7) (68.9)

1.3 (0.1) (17.4) (16.2)

The realised gains and unrealised losses are in respect of the portfolio of corporate and government

bonds. At 31 December 2019, the Company had no material securitised investments.

A.4 Performance of Other Activities

There is no performance of other activities not already covered elsewhere in this report.

Page 19: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 19 of 77

A.5 Any Other Material Activities

There are external factors which impact the key risks of the Company.

There remains uncertainty around the terms under which the UK will leave the European Union (“EU”).

Although Brexit is not expected to have a significant impact on the Company’s operational activity, this

uncertainty leads to lack of clarity on how the EU and UK will interact in the future and the impact on

financial services. It also leads to volatility in financial markets, which can increase certain risks. The

Company has in place controls to minimise the impact of any volatility.

The Company continues to monitor the progress made on the terms under which the UK will trade with

the EU from the end of 2020. The Company believes that it has adequate mitigating controls and

procedures in place to address these risk areas.

It is likely to impact the German and Irish business that remains in Equitable Life, our subsidiary from 1st

January 2020 and this may require further review in 2020. A Part VII transfer of the German and Irish

business to a regulated Irish subsidiary company may be required in the future to enable the company

to provide continuous service to German and Irish policyholders. The outbreak of COVID-19 is having a

significant impact in the UK. We have sought to ensure the safety of our staff and so, in line with

Government advice, the majority of our staff are now set up and are working from home. The COVID-19

outbreak has also caused a high degree of volatility in the financial markets.

The Company considers the COVID-19 outbreak to be a non-adjusting post balance sheet event. The

Company continues to monitor the market movements and their impact on the Company and remains

focused on supporting its customers and staff. Given the inherent uncertainties, it is not practicable to

determine the impact of COVID-19 on the Company’s future financial performance. However, as a

closed book life company consolidator, we are not reliant on new business for generating the majority

of our earnings. As a result of the Part VII transfer from Equitable Life, the Company has a reassurance

agreement with a large UK regulated insurance counterparty and this is the Company’s largest exposure

to downgrades. The COVID-19 outbreak has not caused any interruption to the operation of this

reinsurance and we continue to monitor the financial strength of all our reinsurers. The Company entered

2020 with a strong Balance Sheet and with a Solvency II coverage ratio in excess of 180% as outlined

above. As at the date of approving the SFCR, whilst this Solvency ratio has fallen, mainly as a result of

lower interest rates, it is still comfortably well above required capital levels and we remain in a strong and

resilient position and able to meet our capital requirements.

Page 20: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 20 of 77

B. SYSTEM OF GOVERNANCE

B.1 General Information

Throughout 2019, the Board of the Company consisted of at least seven non-executive Directors (with all

but two being independent, including the Chairman and the Senior Independent Director) and two

Executive Directors.

The Board’s role is to:

Have collective responsibility for the long-term sustainable success of the business;

Provide entrepreneurial leadership of the Company within a framework of prudent and effective

controls which enables risk to be assessed and managed;

Maintain a sustainable business model and a clear strategy consistent with that model;

Ensure that the assets of the Company are safeguarded;

Articulate and oversee a clear and measurable statement of risk appetite against which major

business options are actively assessed;

Meet its regulatory obligations, be open with the Regulators and set a culture that supports prudent

management;

Set the Company’s values and standards and ensure that its obligations to its shareholder and others,

particularly the obligation to treat customers fairly, are understood and met;

Maintain a high standard of corporate governance proportionate to the size of the Company;

Ensure that the necessary resources are in place for the Company to meet its objectives; and

Review management performance.

The Board has authority to delegate certain responsibilities to Board sub-committees and executives and

senior managers within the Company. However, the Board always remains accountable and cannot

delegate this ultimate accountability.

The Company’s Approved Person and Key Function Policy also governs the delegations, to ensure that

individuals and committees have relevant qualifications, experience and knowledge to complete the

task. The structure of the delegated responsibilities to all Board sub-committees is shown below.

Audit Committee

The Audit Committee is a sub-committee of the Company’s Board and has been delegated responsibility

for monitoring the integrity of the Company’s Financial Statements and the adequacy and effectiveness

of internal controls and the risk management system. This includes responsibility for the review of

disclosures to the supervisory authority, including the SFCR, in addition to its UK GAAP statutory financial

reporting and accounts disclosures.

Utmost Life

and Pensions

(ULP) Board

Audit

Committee

(AC)

With-Profits

Committee

(WPC)

Investment

Committee

(IC)

Risk and Compliance Committee

(RCC)

Remuneration

Committee

(RC)

Nomination

Committee

(NC)

Page 21: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 21 of 77

The Members of the Committee are appointed by the Board following consultation with the Committee

Chairman. The Committee will be composed of at least three members at all times, and must be

composed only of non-executive Directors. At least one member of the Committee must have

competence in accounting and/or auditing, and the remaining members should at a minimum have

experience of dealing with financial and accounting matters.

The Committee Chairman shall be appointed by the Board, and shall be an Independent non-executive

Director. In the absence of the Chairman and/or an appointed deputy, the remaining members present

shall elect one of themselves to chair the meeting. The Chairman of each meeting shall be an

independent non-executive Director.

The Company’s Chief Executive, the Chief Financial Officer and the Chief Actuary shall be invited to

attend meetings of the Committee. In addition to appointed members, the Chairman may invite other

persons to attend all or part of any meeting.

Furthermore, Internal and External Audit shall have direct access to the Committee as appropriate.

The Committee shall meet at least four times a year, normally quarterly, and at such other times as the

Chairman considers necessary or appropriate. In addition, ad hoc meetings shall be held whenever it is

necessary to discuss any significant or critical aspects concerning the Company’s financial control affairs

and/or related matters.

Risk and Compliance Committee

The Risk and Compliance Committee is a sub-committee of the Company’s Board and has been

delegated responsibility for assisting the Board in its oversight of the risk management and compliance

culture and ensuring compliance of the undertaking with all legal and administrative requirements. It also

has delegated authority for:

Overseeing the regulatory capital position;

Advising the Board on the Company’s risk appetite and risk, control and compliance exposure;

Setting and monitoring the Company’s risk management and compliance policies; and

Ensuring the effectiveness of its Own Risk Solvency Assessment (“ORSA”).

The Committee also aligns with the Remuneration Committee to embed a risk-based company-wide

Remuneration Policy for the Company.

The members of the Committee shall be appointed by the Board following consultation with the

Committee Chairman. The Committee will be composed of at least three members at all times.

The Committee Chairman shall be appointed by the Board, and shall be an independent non-executive

Director. In the absence of the Chairman and/or an appointed deputy, the remaining members present

shall elect one of themselves to chair the meeting. The Chairman of each meeting shall be an

independent non-executive Director.

The Company’s Chief Executive, the Chief Risk Officer, the Chief Financial Officer and the Chief Actuary

shall be invited to attend meetings of the Committee. In addition to appointed members, the Chairman

may invite other persons to attend all or part of any meeting.

Furthermore, the Chief Risk Officer shall have direct access to the Committee as appropriate.

The Committee shall meet at least four times a year, normally quarterly and at such other times as the

Chairman considers necessary or appropriate. In addition, ad hoc meetings shall be held whenever it is

necessary to discuss any significant or critical aspects concerning the Company’s risk and compliance

affairs and/or related matters.

Page 22: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 22 of 77

With-Profits Committee

The With-Profits Committee is a sub-committee of the Company’s Board and has delegated responsibility

to act in an advisory capacity to inform decision making by the Board in relation to the management of

the Company’s With-Profits Sub-Funds (“WPSFs”), including the way in which each of the WPSFs is

managed by the Company, including adherence to the Principles and Practices of Financial

Management (“PPFM”) and the future distribution of surplus in the WPSFs paying close regard to

policyholders’ reasonable expectations and in keeping with Treating Customers Fairly principles.

The Committee considers relevant matters affecting policyholders generally and matters which affect

sub-groups of policyholders rather than individual cases.

For two years after the 1 April 2018 Reliance Mutual scheme, the Committee also has the additional

responsibilities of supporting the implementation of the scheme and adherence to the PPFM and the

Distribution plan because these documents apply to all of the policyholders of the transferred policies of

RMIS.

The Committee Chairman and other members of the Committee are appointed by the Board in

consultation with the Chairman. The majority of the members of the Committee are independent of the

Company and its group of companies.

During the first two years after the 1 April Reliance Mutual scheme, the With-Profits Committee consisted

of no more than six members; three of whom are former RMIS Directors or RMIS nominees who cannot be

removed during the two-year period other than for gross misconduct or if the Regulators indicate to the

Company in writing that such a member is not suitable to remain a member of the With-Profits

Committee. The Chairman during this period is selected from one of these former RMIS Directors or RMIS

nominees, and is entitled to a casting vote in addition to any other vote he/she may have. Changes are

due to be made in the composition of the Committee once the two-year period has been completed.

At least one member of the With-Profits Committee has recent and relevant financial experience and,

preferably, holds a professional qualification from the professional actuarial body.

The Chairman of the Board is not a member of the With-Profits Committee.

Only members of the With-Profits Committee have the right to attend With-Profits Committee meetings.

However, other Directors and other individuals (including representatives of external advisers) may be

invited to attend all or part of any meeting as and when appropriate in the opinion of the With-Profits

Committee’s Chairman or the majority of its members.

The Committee meets at least four times a year at appropriate intervals in the financial reporting and

with profits cycle, and otherwise as required.

Investment Committee

The Investment Committee is a sub-committee of Company’s Board and has been delegated

responsibility for recommending the overall strategic investment policy for the Board’s consideration, and

oversight and control of the Company’s investment activities.

The Investment Committee shall seek to ensure that investment activities carried out are consistent with

the Investment Policy as adopted by the Board, and Investment Guidelines issued pursuant to seeking

the achievement of the objectives of the Investment Policy as issued from time to time. It exercises control

over the execution of the Board’s strategic decisions and the sound and efficient management of

investment-related matters.

The members of the Committee shall be appointed by the Board following consultation with the

Committee Chairman. The Committee will be composed of at least three members at all times.

The Chairman shall be appointed by the Board, but shall be an independent non-executive Director. In

the absence of the Chairman and/or an appointed deputy, the remaining members present shall elect

one of themselves to chair the meeting. The Chairman of each meeting shall be an independent non-

executive Director.

Page 23: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 23 of 77

The Company’s Chief Executive, the Chief Financial Officer, the Chief Actuary, the With-Profits Actuary,

the Chief Risk Officer and the Investment Oversight Manager shall be invited to attend meetings of the

Committee. In addition to appointed members, the Chairman may invite other persons to attend all or

part of any meeting.

Furthermore, the Chief Financial Officer, the Chief Risk Officer and the Investment Oversight Manager

shall have direct access to the Committee as appropriate.

The Committee shall meet at least quarterly and at such other times as the Chairman considers necessary

or appropriate. In addition, ad hoc meetings shall be held whenever it is necessary to discuss any

significant or critical aspects concerning the Company’s investment affairs and/or related matters.

Remuneration Committee

The Remuneration Committee is a sub-committee of the Company’s Board and has been delegated

responsibility for overseeing the Remuneration Policy, particularly for all executive Directors and the

Company Chairman. The Board itself should determine the remuneration of the non-executive Directors

within the limits set in the Board’s Terms of Reference and those matters reserved for group company

Boards.

No Director shall be involved in any decisions as to their own remuneration.

The members of the Committee shall be appointed by the Board following consultation with the

Committee Chairman. The Committee will be composed of at least three members at all times. The

Committee must be composed only of non-executive Directors.

The Chairman shall be appointed by the Board, but shall be an independent non-executive Director. In

the absence of the Chairman and/or an appointed deputy, the remaining members present shall elect

one of themselves to chair the meeting. The Chairman of each meeting shall be an independent non-

executive Director. The Chairman of the Board shall not be Chairman of the Committee.

In addition to appointed members, the Chairman may invite other persons to attend all or part of any

meeting.

The membership and chairmanship of the Committee will be reviewed each year by the Board in

consultation with the Chairman to ensure that an appropriate balance is maintained between

experience and independence. Changes as required will be recommended to the Board thereafter. The

appointment of members to the Committee shall be for a period of up to three years, extendable up to

two further periods of three years.

The Committee shall meet at least half-yearly and at such other times as the Chairman considers

necessary or appropriate. In addition, ad hoc meetings shall be held whenever it is necessary to discuss

any significant or critical aspects concerning the Company’s remuneration affairs and/or related

matters.

Nominations Committee

The Nominations Committee is a sub-committee of the Company’s Board and has been delegated

responsibility for ensuring that the Board has a formal, rigorous and transparent procedure in place to

manage the appointment of new Directors to the Board, and to ensure that the Board and its

Committees have the appropriate balance of skills, experience, independence and knowledge to

enable them to discharge their respective duties and responsibilities effectively, including succession

planning.

The members of the Committee shall be appointed by the Board following consultation with the

Committee Chairman. The Committee will be composed of at least three members at all times.

Only members of the Committee have the right to attend Committee meetings. However, other

individuals, such as the head of HR and external advisers, may be invited to attend for all or part of any

meeting, as and when appropriate and necessary.

Page 24: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 24 of 77

The Board has appointed the Committee Chairman, who is the Chairman of the Board. The Chairman of

the Board shall not chair the Committee when it is dealing with the matter of succession to the

chairmanship and the Chairman will appoint a deputy for this purpose.

The membership and chairmanship of the Committee will be reviewed each year by the Board in

consultation with the Chairman to ensure that an appropriate balance is maintained between

experience and independence. Changes as required will be recommended to the Board thereafter. The

appointment of members to the Committee shall be for a period of up to three years, extendable up to

two further periods of three years.

The Committee shall meet at least twice a year, and at such other times as the Chairman considers

necessary or appropriate.

Executive Sub-Committees

In addition to the above Board committees, a range of Executive sub-committees are in place to support

the Chief Executive Officer in his decision making. These committees have no delegated authority (with

the exception of the Asset and Liability Committee (“ALCO”), as outlined below) but make

recommendations to the Chief Executive Officer.

During the reporting period, the executive committees that were in place are shown below.

Senior Management Committee

The Senior Management Committee (“SMC”) assists the Chief Executive Officer in managing the business,

executing the business plan, monitoring deliverables and managing the associated risk. This includes

liaising with the other executive sub-committees and responding to their recommendations.

Over the reporting period, the committee comprised: the Chief Executive Officer; the Chief Financial

Officer; the Chief Risk Officer; the Head of Operations; the Chief Actuary; the Company Secretary; the

Head of Asset and Liability Management and Investments; and the With-Profits Actuary. The Company

Secretary acted as secretary to the Committee.

The SMC meets at least 11 times a year.

From 1 January 2020, the SMC was renamed the Executive Committee (“ExCo”) but will continue to

perform the same activities. The composition of the committee will be: the Chief Executive Officer; the

Chief Financial Officer; the Chief Risk Officer; the Chief Actuary; the Customer Services Director; the IT

and Change Director; and the Company Secretary.

Chief Executive

Officer (CEO)

Senior Management

Committee (SMC)

Asset and Liability

Committee (ALCO)

Data Governance Committee

Fair Value Pricing (FVP)

Fair Customer Outcomes

Governance Committee

(FCOG)

Operations Security and Cyber Group

Page 25: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 25 of 77

Asset and Liability Committee

The Asset and Liability Committee (“ALCO”) supports the Chief Financial Officer in the ongoing

management of investments, including agreeing criteria for fund investment and monitoring

performance. It executes investment strategy as defined by the Board and the Investment Committee.

It also oversees all related cash flow requirements.

It makes recommendations to the With-Profits Committee, the Investment Committee, the SMC and the

Risk and Compliance Committee about investment management strategy, cost, performance, unit

pricing and asset allocation decisions to ensure that the interests of all policyholders have been

appropriately considered and represented, and considers the impacts on the risk profile and appetite of

the Company.

The committee comprises the Chief Financial Officer, the Chief Actuary, the Chief Risk Officer, the Head

of Asset Liability Management and Investments, the With-Profits Actuary, the Capital Management

Actuary, and the Investment Oversight Manager, and meets at least 12 times a year.

Fair Customer Outcomes Governance Committee

The Fair Customer Outcomes Governance Committee (“FCOGC”) reports to the SMC and the Risk and

Compliance Committee on the delivery of fair customer outcomes, including the 12 ‘legacy review’

outcomes detailed in the internal control framework. It aims to achieve the outcomes for all

policyholders, having regard to their characteristics and needs.

FCOGC comprises: the Head of Operations as Chair; the Chief Executive Officer; the Operations

Actuarial Manager; the Client Services Manager; the Client Services team leader (Secretary); the Chief

Actuary; the Investment Oversight Manager; the Compliance Manager; the Chief Risk Officer; and the

Chief Financial Officer.

The committee meets at least five times a year.

Fair Value Pricing Committee

When the Fair Value Policy is invoked by the Board, under exceptional circumstances, including a major

disaster or suspended markets, the Fair Value Pricing Committee (“FVPC”) is responsible for determining

the approach for calculating unit prices to treat customers fairly in these circumstances.

The committee comprises the Chief Financial Officer, the Chief Actuary, the Financial Controller and the

Investment Oversight Manager, and meets when required, in line with the Fair Value Pricing Policy.

Data Governance Committee

This committee is responsible for data policy, strategy, procedures, governance artefacts and other data

inventories as part of the data governance process. The committee covers all data related to legal and

regulatory requirements, including Solvency II and General Data Protection Regulation (“GDPR”), and

exists to assist the Head of Operations in carrying out his responsibility to operate the Data Governance

Framework, which in turn exists to ensure that the Company’s legal and regulatory responsibilities for data

are met.

The committee is comprised of: the Head of Operations as Chair; the Chief Actuary; the Chief Risk Officer;

the Compliance Manager; the Chief Financial Officer; the Head of Operations; the Company Secretary;

the Information Security Officer; and data owners (as required).

The committee meets at least four times a year.

Operations Security and Cyber Group

This group exists to: ensure that IT security and cyber risk actions are occurring to schedule; assess

changing security needs; and to ensure that adequate business continuity management capability exists

and is tested successfully in accordance with the agreed test plan, to minimise disruption and losses

(including fines and sanctions) arising from incidents.

Page 26: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 26 of 77

Individual Responsibilities

The structure of the delegated responsibilities to individuals over the reporting period is given below.

Executive responsibilities are delegated to the Chief Executive Officer, with ultimate responsibility either

retained or delegated to senior management and possibly further cascaded to individuals.

Senior managers have the authority to delegate their responsibilities to fit and proper staff, the approval

and assessment of whom is defined in the Approved Person and Key Function Policy.

Integration of all governance

The Company’s Management Responsibilities Map covers all these functions, with named individuals with

the regulatory Senior Managers and Certification Regime (“SM&CR”) functions as part of their

responsibilities.

Risk management is the responsibility of all functional managers, with the Risk function providing oversight

and reporting to the Risk and Compliance Committee. The Chief Risk Officer is a member of the SMC,

and reviews the Company’s risks with the senior team at least monthly, and at every Board meeting.

The Compliance function performs its role in a similar way, with the Compliance Manager reporting to

the Chief Risk Officer.

The Internal Audit function was outsourced to Deloitte LLP during the reporting period, who reported

directly to the Audit Committee. This changed from 1 January 2020 when the function was incorporated

in house.

The Chief Actuary is a member of the SMC, and has a direct reporting line to the Audit Committee and

the main Board.

Remuneration Policy and practices

Remuneration of the Company’s Directors and employees is overseen by the Remuneration Committee,

as outlined above. The Committee aims to ensure that the Company’s various remuneration structures

encourage and support alignment between business decisions, individual behaviour, business

performance and the Company’s values, risk appetite and Capital Management Strategy (“CMS”).

The remuneration of the Chairman, the Chief Executive, executive Directors and senior managers is set

by the Remuneration Committee in accordance with the Company’s Remuneration Policy. The primary

objective of the Remuneration Policy is to ensure that each executive Director/senior manager is

provided with appropriate incentives to encourage exceptional performance and are rewarded for their

individual contributions to the long-term success of the Company.

The principles underpinning the remuneration of the Company’s executive Directors/senior managers

are as follows:

Remuneration in general should reflect individual performance and support the delivery of benefits

and services to the Company and all its stakeholders;

Remuneration should enable the Company to attract, retain and motivate executive Directors of

the quality required to run the Company effectively; and

Reviews of base salary will give due regard to information disclosed by comparable companies to

bear a reasonable relationship to the scale of the role as well as to other factors. A performance-

related incentive scheme is in place for executive Directors and senior managers

Chief

Executive

Officer

Chief Financial Officer

Chief ActuaryChief Risk

Officer

Head of Operations

Head of ALM & Investments

and With Profit Actuary

Company

Secretary

Page 27: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 27 of 77

The Remuneration Committee takes care to ensure that any such bonus payments are appropriate and

that the objectives upon which performance-related payments are assessed are closely aligned to the

interests of the Company’s customers and take into account the Company’s current strategic position.

B.2 Fit and Proper Requirements

The Company has a Fit and Proper Policy in place that sets out the way in which the Company complies

with the PRA’s and the FCA’s Fit and Proper requirements, with particular emphasis on the SM&CR.

As a result, the Company will ensure that its Senior Management Function (“‘SMF”) Holders, Notified Non-

Executive Directors (“NNEDs”), Key Function (“KF”) Holders ), Key Function Persons (“KFPs”), and

Certification Function (“CF”) Holders:

Are, and remain, competent, fit and proper to discharge their responsibilities;

Are aware of their obligations under the Regulators’ relevant conduct rules and standards; and

Are aware of the expectation to avoid, to the extent possible, activities that could create conflicts

of interest or the appearance of conflicts of interest (via the Company’s Conflicts of Interest Policy).

In addition, the Company will ensure that all of its SMF Holders are aware of their obligations under the

Duty of Responsibility and has established, and maintains, appropriate mechanisms and systems to

manage these arrangements.

The Company currently has one standalone NNEDs and currently has no standalone KFPs.

The Company must ensure that all prospective SMF Holders are fit and proper to undertake the

responsibilities being allocated to them. Whilst not expected individually, the Board must collectively

possess appropriate qualifications, experience and knowledge about:

Insurance and financial markets, including the wider business, economic and market environment in

which the Company operates and an awareness of the level of knowledge and needs of its

policyholders;

The business strategy and business model, in detail;

The Systems of Governance within the business, including the awareness and understanding of the

risks the Company is facing and its capability of managing them; together with an ability to assess

the effectiveness of the Company’s arrangements to deliver effective governance, oversight and

controls within the business and, if necessary, to oversee changes in these areas;

Financial and actuarial analysis in order to interpret the Company’s financial and actuarial

information, identify key issues, put in place appropriate controls and take necessary measures

based on this information; and

The regulatory framework and requirements, including the capacity to adapt to changes to the

regulatory framework, without delay.

Such assessment will be made at the most senior level, when considering the appointment of a director,

to ensure that appropriate diversity is evident. This will take place prior to the due diligence process and

prior to the submission of the application form for regulatory approval for a prospective SMF Holder or

notification form for an NNED.

HR maintains a central register of SMF Holders, KFHs and CF Holders in its Management Responsibilities

Map. This records the names and positions of those SMF Holders who run the Company as and when

appointed.

The map also contains a record of the allocation of prescribed responsibilities and a summary of all the

additional allocated SMF Holder responsibilities. This information is detailed further in the SMF Holders’

Statements of Responsibilities. The map is reviewed annually, or more frequently following organisational

change.

Page 28: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 28 of 77

Once the Company has decided at the most senior level that it wishes to appoint an SMF Holder, the HR

department will carry out the necessary due diligence checks in respect of the individual to be

appointed. It will seek to establish information relating to any criminal, disciplinary, enforcement or

administrative offences currently being tried or having been tried in the past relating to both the financial

services industry and outside of the industry.

Whilst having previous infringements may not necessarily result in the person being assessed as not fit for

the role being considered, HR will ensure that there is a judgement based on the widest information

available concerning such offences. HR will co-ordinate the documentation of the assessments of

competence, fitness and propriety before an application is submitted for approval to the regulatory

authorities.

All regulatory applications will be submitted to the Regulators for approval by the Compliance team,

once the due diligence process has been completed and wishes to proceed with the appointment of

the candidate as an SMF Holder.

For employed staff, the Company uses a semi-annual written appraisal process to manage performance

and to ensure continued suitability for each role (in addition to the regular fitness and propriety checks).

Board members are appraised annually through a transparent self-assessment process, with results

aggregated and discussed by the whole Board. The Chairman supplements this with individual interviews.

B.3 Risk Management System

The Risk Management function is principally responsible for the ongoing implementation of the

Company’s RMF: the framework in place to identify and effectively manage the risks of the Company

and support the achievement of the Company’s corporate objectives.

The following table describes the elements of the Company’s RMF.

RMF Overview

Area Description

Risk Universe Identification of all the risks that could affect the Company.

Risk Strategy Articulates the Company’s approach to the taking on and management of risk.

Risk Appetite

Statement

The Company’s view on the level and type of risk that it is willing to take on in the

pursuit of achieving its strategic objective and business plan.

Risk

Governance The method used for directing and controlling the management of risk.

Risk Policies The Company maintains a policy for each risk class in its risk universe. Each policy

documents the Company’s approach to the management of the individual risk class.

Risk Culture Determines the values, knowledge, understanding and behaviour with regard to risk.

Risk

Management

Process

Identifies and articulates the key elements of the Risk Management Process. These

key elements are described in the table below.

Risk

Management

Information

Underpins the Board/senior management’s: (i) understanding of the Company; and

(ii) decision-making capabilities.

Page 29: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 29 of 77

RMF Overview

Area Description

Stress Testing

Framework

Provides insight into how the Company may be affected by alternative and typically

adverse conditions.

Capital

Management

Articulates the Company’s approach to the management of capital and the

responsibilities of the Capital Management function.

The following table summarises the processes used to identify, measure, monitor, manage and report the

risks of the Company.

Process Description

Risk

Identification

Key elements of the process include: control risk self-assessment, Risk Management

function analysis, senior management analysis, SMC review, Risk and Compliance

Committee review, and ORSA analysis.

Risk

Measurement

Section C provides details of the risk measures for each material/relevant risk class

identified by the Company.

Risk Monitoring Senior management and Board level review of the risk measures articulated for each

risk class.

Risk

Management The management and mitigation techniques used for each risk class are articulated.

Risk Reporting

Regular review by senior management and the Board of the Company’s risk reporting,

which includes: risk profile, ORSA reporting, risk reports, Key Risk Indicators (“KRIs”) and

loss data.

Risk management is the responsibility of all functional managers, with the Risk function providing oversight

and reporting to the Risk and Compliance Committee. The Chief Risk Officer is a member of the SMC,

and reviews the Company’s risks with the senior team at least monthly, and at every main Board meeting.

The Risk and Compliance Committee provides oversight of the Company’s risk management.

The Company operates the ‘three lines of defence’ model for risk management and oversight:

Line 1 has responsibility for the management of risk across the organisation and comprises

executive committees, management and staff;

Line 2 is responsible for the provision of oversight to ensure that the first line is managing risk within

the Board-approved risk appetite and in line with the RMF; this line consists of the Risk function

and the Risk and Compliance Committee; and

Line 3 is responsible for providing independent assurance on the effectiveness of internal controls

and risk management processes across the first and second line, and is performed by the Internal

Auditors reporting to the Audit Committee.

Consideration of the Company’s risk appetite statement is a key component of the Company’s decision-

making process. Material decisions made by the Company are fully considered, documented and

evidenced in terms of alignment with the Company’s risk appetite. The Company’s risk appetite

statement articulates the process to be followed if any prospective actions or decisions have the

potential to lead to non-alignment with the Company’s risk appetite.

Page 30: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 30 of 77

B.4 Own Risk and Solvency Assessment

The Company’s Own Risk and Solvency Assessment (“ORSA”) framework is the primary means by which

the Board and other key stakeholders are provided with a comprehensive understanding of the

Company’s risk profile and expected capital needs over its business planning period. The analysis,

findings and recommendations (i.e. the output) from the ORSA are therefore a key part of the Board’s

strategic decision-making process and the way in which these decisions are implemented by senior

management.

Equally, the Company’s current strategic objectives, business plan and target risk profile are also key

inputs into the scope and focus of the ORSA. The Company’s Board, together with senior management,

play a significant and ongoing role in determining the set of scenarios which will be included in the ORSA,

the assumptions for each of these scenarios, and the criteria against which the results will be assessed.

The following table sets out the main components of the Company’s ORSA process.

ORSA Process

Work Stream Activity Description

Design

Process and

Document

Design

Review of existing ORSA process and documentation to ensure

the ORSA remains fit for purpose and compliant with current

guidelines.

Reporting and

Documentation

Quarterly ORSA

Bulletin

A regular update on the forecast solvency position and risk

profile of the Company, and an update on any investigations

or actions.

ORSA Policy Update of the existing ORSA Policy to ensure that it reflects the

purpose, scope, process and aims of the Company's ORSA.

Annual ORSA

Report

A full reforecast of the solvency position and risk profile of the

Company, under base and alternative scenario conditions.

Standard

Formula Testing

Standard

Formula

Appropriateness

Exercise

Analysis of the Standard Formula SCR relative to the

Company's current and emerging risk profile, to ensure that it

remains appropriate.

Scenario

Development

Scenario Design

and Definition

Development of the alternative scenarios which will be

assessed within the Company's ORSA framework.

Model

Development

and Inputs

ORSA Basis Basis setting exercise to define the parameters and

assumptions to use in the ORSA balance sheet projections.

ORSA Model

Development Further development of the existing ORSA projection models.

ORSA Data Exercise to gather, check and validate the data feeding into

the Company's ORSA process.

Projections

ORSA Projection

Runs

Projection of the Company's balance sheet and risk profile

under base and alternative scenarios, before and after

management actions.

ORSA Control

and Validation

Control and validation process applied to the ORSA projection

runs to ensure that they are free from error.

Use Strategy and

Business Plan

Insight from the ORSA informs the Company's strategic

direction and business planning.

Page 31: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 31 of 77

ORSA Process

Work Stream Activity Description

Risk Appetite

and Limits

Review

ORSA forecasts used to assess the Company's alignment with

risk appetite and the individual risk limits. The ORSA is also used

to review the appropriateness of the current limits.

Investigation ORSA analysis used to identify areas for further investigation,

typically carried out by either the Risk or Actuarial functions.

Decision Making The ORSA is a key management tool in the decision-making

processes of the Company.

All components of the ORSA undergo an initial review by the Chief Actuary, the Chief Risk Officer and

the Capital Management Actuary. Depending on the component concerned, the scope of this initial

review ensures that the structure, style and content will be understood and correctly interpreted by the

Board, the Risk and Compliance Committee, senior management and any other users (for example,

department heads and the Regulators)

The output undergoes a thorough review process, which affords the Company’s Board, committee

members, and senior management the opportunity to interrogate, challenge and feedback on the

various inputs into and outputs from the ORSA analysis.

The ORSA is carried out annually, and is updated during the year in the event of any material change to

the Company’s risk profile. The Chief Risk Officer has overall responsibility for the ORSA process and the

ORSA report. The Actuarial function carries out the calculations.

B.5 Internal Control System

The Company maintains an Internal Control Policy to ensure that internal control practices are

established, implemented and maintained in line with the objectives, strategy, risk appetite and long-

term interests of the Company as a whole. The policy describes the controls and procedures in place to

ensure:

The effectiveness and efficiency of operations;

Compliance with applicable regulations; and

Availability and reliability of financial and non-financial information.

The policy applies to all activities and processes undertaken by the Company to ensure that it operates

an effective internal control system, and sits within the internal controls framework which collates the sub-

policies and processes to which this policy applies.

The Company’s Board is ultimately responsible for ensuring that there is an effective internal control

framework, and for establishing a culture within the Company that emphasises and demonstrates to all

levels of personnel the importance of internal controls. Management is responsible for the

implementation of the relevant rules and guidance. All employees need to understand their role in the

internal control framework and be fully engaged in the process.

The policy forms a part of the Company’s System of Governance. It is owned by the CEO and approved

by the Board. Individual policies within the framework are subject to their own governance requirements,

as specified in the individual policies.

The policy is reviewed on an annual basis by the SMC, or more frequently where necessary, to ensure

that it remains up to date and relevant to the processes which it is intended to control. Strategy,

organisational structure and risk profile changes may trigger ad hoc reviews of this policy.

Page 32: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 32 of 77

The purpose of internal control is to support the Company in the achievement of its objectives. The

Company has identified five key components of the internal control framework, as follows:

Corporate Governance;

Risk Management;

Compliance;

Information and Communication; and

Information and Communication Technologies.

Each of the internal control components is described in more detail in the Internal Controls Policy.

The Company operates the ‘three lines of defence’ model for oversight:

Line 1 has the responsibility for the management of controls across the organisation and comprises

executive committees, management and staff;

Line 2 is responsible for the provision of oversight to ensure that the first line is managing controls within

the internal control system and associated policies. This is performed by the Risk function,

Compliance the Risk and Compliance Committee;

Line 3 is responsible for providing independent assurance on the effectiveness of internal controls across

the first and second lines. This is performed by Internal Audit, reporting to the Audit Committee.

B.6 Internal Audit Function

The Company’s Internal Audit function provides assurance over the operation of governance, risk

management and the system of internal control. During 2019, the Internal Audit function was outsourced

to Deloitte LLP to capitalise on their breadth of experience in relation to the size of the company. The

decision to outsource the function, and to whom, is reviewed by the Audit Committee. During Quarter 4

2019, recruitment commenced for an internal Head of Internal Audit role. From 1 January 2020, the entire

function will comprise in-house full-time employees.

Internal Audit is an independent, effective and objective function established by the Board to examine

and evaluate the adequacy, functioning, effectiveness and efficiency of the internal control system and

all other elements of the System of Governance, with a view to improving the efficacy and efficiency of

the internal control system, of the Company and of the governance processes. This is set out in the

Internal Audit Policy and Charter and the Audit Committee’s Terms of Reference.

Internal Audit supports the Board in identifying the strategies and guidelines on internal control and risk

management, ensuring that they are appropriate and valid over time, and provides the Board with

analysis, appraisals, recommendations and information concerning the activities reviewed. It also carries

out assurance and advisory activities for the benefit of the Board, the SMC and other departments.

Internal Audit’s authority is enshrined in its Charter, which is reviewed and approved annually by the Audit

Committee and the Board. As a result, Internal Audit has full, free, unrestricted and timely access to any

and all the organisation’s records, physical properties, and personnel pertinent to carry out any

engagement, with strict accountability for confidentiality and safeguarding records and information.

Internal Audit governs via the Company’s Internal Audit methodology. This methodology is aligned with

the Institute of Internal Auditors’ mandatory guidance including the Definition of Internal Auditing, the

Code of Ethics, and the International Standards for the Professional Practice of Internal Auditing

(Standards). This mandatory guidance constitutes principles of the fundamental requirements for the

professional practice of auditing and for evaluating the effectiveness of the audit activity’s performance.

Given the delicate and important nature of the assurance role carried out within the business, all Internal

Audit staff must have specific fit and proper requirements, as requested by the Company’s Fit and Proper

Policy.

Page 33: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 33 of 77

Internal Audit remains free from interference by any element in the Company, including matters of audit

selection, scope, procedures, frequency, timing or report content to permit maintenance of a necessary

independent and objective mental attitude. On an annual basis, the incoming in-house Head of Internal

Audit will confirm his/her independence and that of Internal Audit to the Audit Committee.

Independence and objectivity from the activities that Internal Audit reviews is achieved by ensuring that:

There is a direct reporting line from Internal Audit to the Audit Committee;

All Internal Audit activities are free from influence from anyone in the Company, including matters of

audit selection, scope, procedures, frequency, timing or report content;

Members of the Internal Audit function are able to meet with the Audit Committee in private session

if required;

Internal Audit has the resources and necessary skills required to deliver the Audit plan, both in general

audit and technical areas, and support facilities;

Internal Audit has the authority to audit all parts of the Company; and

Internal Audit has full and complete access to all information, records, facilities and personnel

relevant to the performance of an audit.

On an annual basis, the Head of Internal Audit presents a proposed 12-month plan to the Audit

Committee requesting approval. This plan is developed based on an audit universe using a risk-based

methodology, taking into account all past audit activities, the complete System of Governance output,

the expected developments of activities and innovations and including input from the SMC and the

Board.

The Head of Internal Audit reviews the plan on an ongoing basis and adjusts it in response to changes in

the Company’s business, risks, operations, programs, systems, controls and findings.

This review is informal and any change to the plan is first approved by the Chair of the Audit Committee.

Following the conclusion of each Internal Audit engagement, a written audit report is prepared and

issued to the auditee and the auditee’s hierarchy. The Head of Internal Audit, on a quarterly basis,

provides the Audit Committee with a report on activities, status of open and overdue audit issues, any

significant issues and audit reports issued during the period. However, in the event of any particularly

serious situation, such as the emergence of a conflict of interest, the Head of Internal Audit will

immediately inform the Audit Committee and the Board.

Page 34: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 34 of 77

B.7 Actuarial Function

The Actuarial function consists of employees of the Company supplemented by external consultants to

provide additional resource when needed. The Chief Actuary has overall responsibility for the output

from the Actuarial function. The Chief Actuary is a Fellow of the Institute and Faculty of Actuaries and

holds a Chief Actuary (Life) Practising Certificate. He is also the approved person for the senior managers

function Chief Actuary. The current responsibilities of the Actuarial function are detailed in the following

table.

Balance Sheet

Valuation

Carry out annual and quarterly valuations of the Company's assets and other liabilities,

Technical Provisions, and capital requirements consistent with Solvency II.

Balance Sheet

Forecasting

Carry out a forecast of the Company's projected solvency position over its business

planning period under central best estimate and alternative scenario assumptions for

consideration within the ORSA framework.

Transitional

Measures

Calculate the Company's Transitional Measure on Technical Provisions (“TMTPs”') and

monitor the metrics against the triggers for recalculation.

Matching

Adjustment

Recalculate the MA) and monitor the Company's compliance with the rules required

to continue to use the MA.

Solvency

Monitoring

Estimate the Solvency II balance sheet on a monthly basis to monitor the Company's

solvency position.

Data Quality Assess the sufficiency and quality of the data used in the calculation of the Company's

technical provisions.

Experience

Analysis

Analyse the Company's recent historic demographic experience (for example,

mortality and persistency) to inform assumption setting.

Assumption

Setting

Recommend the demographic, expense and economic assumptions to be used in the

Company's balance sheet valuation and forecasting based on internal experience

analysis and reference to relevant external market or industry variables.

Model

Development

Maintain and develop the model required to value the Company's policyholder

liabilities under central best estimate assumptions and the Solvency II Standard Formula

stress tests.

Bonus Setting Recommend the regular and terminal bonuses to be paid to the Company's with-profits

policyholders.

Run-Off

Planning

Prepare the recommended run-off plans for the Company's with-profits funds including,

for each fund, a description of the governance of the fund, details of how the

Company intends to manage the risk profile and funding position, and a projection of

the fund’s expected financial position.

Reinsurance

and

Underwriting

Provide an opinion to the Board on the adequacy of the Company's reinsurance

arrangements and underwriting policy.

Page 35: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 35 of 77

B.8 Assessment of Governance

Outsourcing Policy

The Company’s Outsourcing Policy applies to both existing and proposed outsourcing arrangements, as

well as to contracts with third-party suppliers, which are not considered outsourcing by the Company.

The key elements of the policy cover requirements for:

Decision making;

Negotiation;

Outsourcing procedures;

Re-evaluation;

Contractual arrangements;

Transition planning;

Supplier management and monitoring (see below); and

Policy breaches.

Supplier management and monitoring

With regard to ongoing management and monitoring of outsourced functions or activities, the following

is required:

The Company must retain the necessary expertise to supervise the supplied functions effectively

and to manage the associated risks;

The outsourcing business owner of each arrangement must retain responsibility for the activity

and must ensure that any ongoing risks are properly managed;

A proportionate supplier management and oversight regime must be defined at the outset;

The business owner must ensure that the supplier management and oversight regime operates

effectively and that any appropriate remedial action is taken;

The effectiveness of the service or activity provided by the supplier must be reviewed at least

annually by the sponsor or business owner. This should include an assessment of the requirement

for an appropriate level of fresh due diligence and a review of the suitability of the existing

contractual arrangements;

The decision to continue with the arrangement must be reviewed at least triennially;

The measures of performance of the supplier should be both qualitative and quantitative; and

The approved control regime, service reports, meeting minutes and other items relating to the

monitoring and execution of each contract must be retained by the authoriser of each

arrangement.

Key outsourced functions

During 2019, one new outsourcing activity was agreed by the Company. In preparation for the

acquisition of Equitable Life, the Board approved a new agreement with Atos Consulting to provide

outsourced IT services in regards for the combined organisation going forward through a migration in

2020.

There were changes to the outsourcing service providers; namely investment management, from

Schroder’s Investment Management to J.P. Morgan Asset Management. On 27 March 2019, the Board

approved the appointment of J.P. Morgan Asset Management as an investment manager.

The Internal Audit outsourcing service provider, Deloitte LLP. resigned during the third quarter of the year

and was replaced by an in-house specialist team on 1 January 2020.

All of the outsourced functions are within the jurisdiction of the UK.

Page 36: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 36 of 77

Assessment of Governance

Key elements of the Company’s System of Governance including the risk management system (including

ORSA), the Internal Control System, the Internal Audit function are all subject to ongoing oversight and

review by senior management and the Board to ensure that they remain effective and fit for purpose.

As at 31 December 2019, the Board was of the view that the System of Governance is at an appropriate

level and was in line with requirements. The Board delegate’s authority to the Chief Executive to facilitate

the day-to-day management of the Company, subject to the limits and terms set out in a delegated

authority schedule. The Board may still determine any matter it wishes within its constitutional and

statutory powers.

B.9 Other Information

Acquisition of Equitable Life

Following the acquisition of the Equitable Life, the executive committees will increase, as shown below.

The FCOGC, ALCO, Operations and Security Cyber Group and Data Governance Committees will

continue their duties as described above, although there will be small changes to their composition to

reflect changes in role titles. The FVPC has been renamed the Crisis Management Committee and as

detailed above, SMC has been renamed to ExCo.

For the new committees, a brief description is given below.

Reassurance Group

This committee is to be chaired by the Chief Actuary and exists to review the management of the

reassured book in accordance with the requirements of the Reassurance Agreements.

Technical Review Committee

This committee exists to debate, challenge, approve and, where necessary make recommendations to

SMC on key model calculation methodologies, technical assumptions and limitations for finance and

actuarial models. This committee is chaired by the Chief Financial Officer.

Integration and Change Governance Group

The Integration and Change Governance Group Committee (“ICGGC”) is chaired by the Chief Financial

Officer and is a cross function, cross department meeting with representatives from areas impacted or

participating in integration and business-as-usual projects. The main objectives are to: provide guidance

that fit with business strategic objectives; prioritise and schedule change initiatives in conjunction with

project sponsors; and have overall responsibility for the delivery and direction of projects.

ExCo

Reassurance

Group

Regulatory

and Industry

Development

Committee

Crisis

Management

Committee

Technical

Review

Committee

Asset and

Liability

Committee

CEO

Fair Customer

Outcomes

Governance

Committee

Operations

Security and

Cyber Group

Data

Governance

Committee

Integration

and Change

Governance

Group

Page 37: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 37 of 77

Regulatory and Industry Development Committee

The Regulatory and Industry Development Committee (“RIDCo”) is an important element of the

Company’s systems and controls, and is responsible for ensuring that regulatory or industry-wide changes

relevant to the Company are identified in order to enable the business to respond appropriately. It reports

into the ICGGC with any change programmes as a result of regulatory or industry developments.

COVID-19

There is not expected to be any material impact on the Systems of Governance due to COVID-19. The

Risk Management System will continue to operate as detailed above and will take account of the risks

posed by COVID-19, including any changes to controls.

Page 38: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 38 of 77

C. RISK PROFILE

The Company manages risk and risk exposures through a well-defined RMF, as detailed in Section B.

The chart below shows the component risks which make up the Company’s pre-diversified SCR.

The largest risk exposure is to credit risk, due to the large portfolio of corporate bonds which match

fixed/guaranteed liabilities, primarily annuities. Underwriting risk is the second largest, covering the

Company’s exposure to longevity risks in the annuity portfolio, lapse risk and expense risk. Market risk is

the next largest arising from the Company’s exposure to adverse changes in UK risk-free interest rates

and gilt and swap rates.

In addition, the Company maintains registers of qualitative business risks.

Descriptions of the categories of risks to which the Company is exposed are detailed below, together

with the measurement, management and mitigation followed.

Post 1 January 2020, the risk profile of the company will change materially due to the acquisition and

integration of the business from Equitable Life.

Most of the acquired policies under the acquisition are unit-linked and so the financial risks associated

with this type of business are much reduced compared to the policies serviced by the Company during

the reporting period.

After acquisition, the greatest risk exposures for the Company are lapse and equity risk. Credit risk reduces

as a proportion of the total SCR because there is relatively little additional credit risk with the acquisition.

The table below shows the change in the composition of the pre-diversified SCR after the acquisition of

the Equitable.

SCR risk (pre-diversified) 31/12/19 01/01/20

Underwriting 35% 47%

Market 20% 26%

Credit 42% 24%

Operational 3% 3%

£48.0m

£27.5m

£57.9m

£5.2m

Components of SCR

Underwriting

Market

Credit

Operational

Page 39: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 39 of 77

C.1 Underwriting Risk

C.1.1 Risk exposures

The table below provides a description of the Company’s material underwriting risk exposures as

determined by the Company’s Risk Management function.

Risk Category Risk Sub-

Category Description

Longevity

Baseline

Longevity Risk

The risk that the Company's best estimate assumptions for the

level of base mortality are too high relative to actual

experience.

Longevity

Improvements

Risk

The risk that the Company's best estimate assumptions for

future mortality improvements are too low relative to actual

experience.

Persistency

Baseline

Persistency Risk

The risk that the Company's best estimate assumptions for the

long-term level of lapse, surrender and paid-up rates are

different to actual experience.

Mass Lapse Risk The risk of an immediate withdrawal of a significant proportion

of the Company's in-force business.

Maintenance

Expense Risk

The risk of higher than expected expenses related to the

maintenance of the in-force book, which includes general

business overheads but excludes project costs.

Expense

Expense Inflation

Risk

The risk that the Company's best estimate assumptions for the

future rate of expense inflation are too low relative to actual

experience.

Project Cost Risk The risk of higher than expected costs associated with the

development and delivery of the Company's projects.

Claims

Management

Expense Risk

The risk of higher than expected expenses relating to servicing

claims on the Company’s in-force book.

Option Take-Up Baseline GAO

Take-Up Risk

The risk that the Company's best estimate assumptions for the

level of GAO take-up are too low relative to actual

experience.

The Company’s most material underwriting risk exposure in terms of risk capital during the reporting period

was longevity risk (which arises primarily on the Company’s significant in-force book of in-payment

annuities). The Company has in place a longevity swap for the annuitant liability in the NPF to manage

its risk exposure. The other material underwriting risks are expense risk (which arises because the majority

of the Company's operational activity is carried out in house) and persistency and option take-up risk.

After 1 January 2020, the Company’s most material underwriting risk exposure will be persistency risk from

the larger unit-linked book of business. The additional exposure relates almost entirely to the risk that early

terminations reduce annual management charges. This makes mass lapse the most onerous test going

forwards.

Page 40: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 40 of 77

C.1.2 Risk measures

The table below sets out the main tools used by the Company to measure its underwriting risks.

Measurement

Tool Measure

Stress Testing

Impact on the Company’s Own Funds of a 99.5th percentile one-year level

change in the risk variable(s) corresponding to each underwriting risk (carried out

using the Solvency II Standard Formula calibration).

Reverse Stress

Testing

Severity of risk event/deterioration in experience in respect of a particular

underwriting risk exposure that would be required to breach the Company's

point(s) of non-viability or other limits.

Scenario Testing

Potential effect on the Company's solvency position and risk profile of alternative

scenarios involving short- or long-term changes to one or more of the Company’s

underwriting risk variables.

Sensitivity Testing Impact on the Company’s solvency position of changes in the risk variable(s)

corresponding to each underwriting risk.

Experience

Analysis

Comparison of recent demographic and expense experience with historic

internal experience, wider industry experience, and current best estimate

assumptions.

Experience

Monitoring Quarterly/monthly review of recent experience.

Budget Analysis Comparison of recent experience with budgeted or forecast amounts.

Not all of the above risk measures are used to measure all of the Company’s different underwriting risk

exposures.

C.1.3 Risk concentrations

The Company does not currently carry out any formal investigation into or analysis of concentrations of

underwriting risk, on the basis that these are not considered to be material.

In particular, the Company does not believe that the current in-force book contains any material

concentrations of policyholders by location, health, lifestyle or socio-economic group. To the extent that

the current in-force book is sufficiently large and well diversified, it should be protected by short-term

variations in experience.

Page 41: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 41 of 77

C.1.4 Risk management and mitigation

The table below sets out the specific risk management and risk mitigation approaches the Company

uses in respect of its underwriting risk exposures.

Risk Mitigation Description

Risk Appetite Statements covering the Company’s approach towards underwriting risk.

Economic

Capital

Economic Capital held on the Company’s regulatory balance sheet in respect of

each of its material underwriting risk exposures (derived using the Solvency II

Standard Formula approach).

Reinsurance Full or partial transfer of underwriting risk to reinsurance counterparties, including

the use of longevity-swap arrangements on the Company’s in-payment annuities.

Assumption

Setting

Annual assumption-setting exercise to ensure that the assumptions used to

determine the Company’s Technical Provisions appropriately reflect the current

best estimate of future underwriting experience.

Claims

Underwriting

Underwriting to determine the initial or ongoing validity of claims relating to

exclusion clauses, non-disclosure, fraud, etc.

Budget

Reforecasting

Regular updates to the Company’s business plan and expense budget to ensure

that forecasts continue to reflect expected experience.

Cost Control Cost control activity to ensure that expenditure remains within plan.

Risk Monitoring Regular senior management and Board level review of the risk measures

discussed in section C.1.2.

Not all of the above risk management and mitigation approaches are used in respect of all of the

Company’s different underwriting risk exposures.

The Company does not anticipate making any material changes to its current approach to managing

and mitigating its underwriting risk exposures. In particular, it currently has no plans to either introduce

any new or stop using any existing risk mitigation practices.

Page 42: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 42 of 77

C.2 Market Risk

C.2.1 Risk exposures

The table below provides a description of the Company’s material market risk exposures as determined

by the Company’s Risk Management function.

Risk Category Risk Description

Interest Rates Risk of unexpected changes in the level and/or shape of the term structure of UK

risk-free interest rates which adversely affects the value of the Company's assets,

liabilities, capital requirements and/or cash flows.

Gilt – Swap

Spread

Risk that the spreads between gilt rates and swap rates (based on the EIOPA curve)

widens, increasing the level of volatility on the Company’s balance sheet.

Risk of inconsistent movements in UK gilt yields and swap rates (based on the EIOPA

curve), leading to inconsistent movements in the value of the Company’s assets

and Technical Provisions.

Equity Prices Risk of adverse changes (i.e. falls) in the level of equity prices, which reduces the

value of the Company assets or increases the value of its liabilities.

Currency

Movements

Risk of loss or of adverse change in the Company’s financial situation (for example,

decreasing the value of the Company’s assets or increasing the value of its liabilities)

resulting, directly or indirectly, from fluctuations in the level and in the volatility of

foreign exchange rates.

Despite having a relatively low level of capital impact under the Solvency II Standard Formula stress tests,

interest rate risk is one of the Company’s most material market related risk (excluding spread widening

and concentration risks [see section C.3.1 below]). The Company’s assets and Best Estimate Liabilities

(“BELs”) are well matched, which means that that movements in interest rates have a similar impact on

the assets and liabilities and so the net impact on the balance sheet is small. However, the presence of

the Risk Margin within the Technical Provisions introduces significant balance sheet sensitivity to changes

in interest rates. In addition, movements in interest rates, by increasing or decreasing the value of assets

and liabilities, will increase or decrease the size of the balance sheet. This will have a secondary impact

on other SCR capital requirements by applying the SCR stresses to a larger or smaller balance sheet.

Post 1 January 2020, equity risk exposure will increase for the Company. The Company will collect Annual

Management Charges (“AMCs”) as a percentage of unit-linked funds. The unit-linked funds typically

have high equity exposures, making the AMCs dependent on equity markets. This will be the primary

equity exposure.

Page 43: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 43 of 77

C.2.2 Risk measures

The table below sets out the main tools used by the Company to measure market risk.

Measurement

Tool Measure

Stress Testing

Impact on the Company’s Own Funds of a 99.5th percentile one-year level

change in the risk variable(s) corresponding to each market risk (carried out using

the Solvency II Standard Formula calibration).

Reverse Stress

Testing

Severity of risk event/deterioration in experience in respect of a particular market

risk exposure that would be required to breach the Company's point(s) of non-

viability or other limits.

Scenario Testing

Potential effect on the Company's solvency position and risk profile of alternative

scenarios involving short- or long-term changes to one or more of the Company’s

market risk variables.

Sensitivity Testing Impact on the Company’s solvency position of small changes in the risk

variable(s) corresponding to each market risk.

Portfolio

Reporting

Measures and metrics contained within the Company’s asset and investment

reports which cover its asset portfolios, asset and liability management (“ALM”),

and hedging activity.

Market

Monitoring

Market performance and risk variables, such as interest rates, equity indices,

spreads and volatility indices.

Not all of the above risk measures are used to measure all of the Company’s different market risk

exposures.

C.2.3 Risk concentrations

The Company’s market and credit-related risk concentrations are covered in section C.3.3 below.

C.2.4 Risk management and mitigation

The table below sets out the specific risk management and risk mitigation approaches the Company

uses in respect of its market risk exposures.

Risk Mitigation Description

Risk Appetite Statements covering the Company’s approach towards market risk.

Economic

Capital

Economic Capital held on the Company’s regulatory balance sheet in respect of

each of its material market risk exposures (derived using the Solvency II Standard

Formula approach).

Asset Liability

Management

The Company actively pursues an asset liability matching strategy. In particular,

within the NPF, the Company operates two MA portfolios which have strict

matching requirements.

Investment

Guidelines –

Limit Structures

The Investment Guidelines for each of the Company’s investment portfolio set out

limit structures for the assets permitted within each portfolio. Market risk is an

important factor in the choice of available assets.

Capital

Management of

WPSFs

The Company aims to have the WPSFs standing alone and meeting their own

capital requirements (excluding operational risk). As a result, the market risk

exposure of the WPSFs is controlled to facilitate this.

Risk Monitoring Regular senior management and Board level review of the risk measures

discussed in section C.2.2.

Page 44: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 44 of 77

Risk management and mitigation

Not all of the above risk management and mitigation approaches are used in respect of all of the

Company’s different market risk exposures.

The Company does not anticipate making any material changes to its current approach to managing

and mitigating its market risk exposures. In particular, it currently has no plans to either introduce any new,

or stop using any existing, risk mitigation practices.

C.3 Credit Risk

C.3.1 Risk exposures

The table below provides a description of the Company’s material credit risk exposures as determined

by the Company’s Risk Management function.

Risk Category Risk Description

Counterparty Default

(Fixed-interest and

other money market

instruments, cash

deposits)

Risk of default on interest or capital repayments on corporate debt and

other bond instruments, and cash deposits.

Counterparty

Downgrade

Risk of negative impacts on the Company’s solvency position as a result of

asset downgrades.

Increased exposure to credit spread widening and counterparty default if

any downgrade reflects a genuine increase in the riskiness of the

counterparty.

Concentration

(Fixed-interest and

other money market

instruments, cash

deposits)

Additional risk to the Company stemming either from lack of diversification

in the asset portfolio or from large exposure to default risk by a single issuer

of securities or a group of related issuers.

Credit Spreads

Risk that the value of future cash flows is exposed to fluctuations in spreads

on corporate bonds, resulting in changes in the value of corporate bond

holdings.

Derivative

Counterparty Default

Risk that derivative counterparties default on contracts that are ‘in-the-

money’ causing financial loss to the Company.

Reinsurance

Counterparty Default

Risk that one (or more) of the Company’s reinsurance counterparties is

unable to meet its financial obligations to the Company.

Consistent with the above presentation of the Company’s credit risk profile, it should be noted that

spread risk, which is assessed within the market risk module of the Standard Formula SCR, is considered

by the Company to belong to the credit risk class.

Similarly, concentration risk, which is also assessed within the market risk module of the Standard Formula

SCR, primarily relates to the risk of concentrated counterparty exposures on the Company’s bond

holdings and cash deposits. Concentration risk is therefore also considered by the Company to belong

to the credit risk class.

Page 45: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 45 of 77

Assessed in terms of undiversified risk capital, spread risk is the most material credit risk to which the

Company is currently exposed. However, the Company’s balance sheet would also be significantly

affected if one or more of its material counterparty exposures were to default. All of these risks primarily

arise due to the significant holdings of corporate bonds which are used to back the Company’s large

block of in-payment annuities.

C.3.2 Risk measures

The table below sets out the main tools used by the Company to measure credit risks.

Measurement

Tool Measure

Stress Testing

Impact on the Company’s Own Funds of a 99.5th percentile one-year level change

in the risk variable(s) corresponding to each credit risk (carried out using the

Solvency II Standard Formula calibration).

Reverse Stress

Testing

Severity of risk event/deterioration in experience in respect of a particular credit risk

exposure that would be required to breach the Company's point(s) of non-viability

or other limits.

Scenario

Testing

Potential effect on the Company's solvency position and risk profile of alternative

scenarios involving short- or long- term changes to one or more of the Company’s

credit risk variables, for example, credit spreads and defaults.

Sensitivity

Testing

Impact on the Company’s solvency position of small changes in the risk variable(s)

corresponding to each credit risk.

Portfolio

Reporting

Measures/metrics contained within the Company’s asset and investment reports

which cover exposure limits, credit rating information, downgrades, counterparty

exposure and other information relevant to credit risk.

Market

Monitoring

Credit risk variables including corporate bond spread indices split out by duration

and credit rating.

Not all of the above risk measures are used to measure all of the Company’s different credit risk

exposures.

C.3.3 Risk concentrations

Financial instruments

The Company has substantial holdings in UK government issued assets (i.e. gilts) and in a single short-term

money market instrument. However, the former it considers to be risk free and the latter is well-diversified

at an underlying level. As such, the Company does not consider that either of these exposures poses a

material concentration of risk.

The Company’s direct investment holdings and bank deposits are well diversified. The top five

counterparty exposures by value across its non-linked investments as at 31 December 2019 were, by

issuer, as follows: HSBC (£44.1m); Lloyds Banking Group (£31.1m); French Republic (£25.0m);

GlaxoSmithKline (£19.1m); General Electric (£18.8m).

Each of these top holdings individually contributes less than 5% to total non-linked investments and, whilst

the complete default of any one would have a significant impact on the Company’s Own Funds, the

issuers are sufficiently highly rated that the Company does not consider the holdings to be above an

acceptable level.

Reinsurance counterparties

The table below shows the ‘net exposure’ (i.e. the value of reinsurance assets and liabilities) in respect of

the Company’s most material reinsurance arrangements as at 31 December 2019, under both base and

longevity stress scenarios.

Page 46: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 46 of 77

Reinsurance Counterparties

The Company does not consider the level of exposure to any one particular reinsurer to be excessive or

to represent a concentration of risk. The negative RGA Global reinsurance value arises because the cost

of the reinsurance arrangement exceeds the benefit it provides. The recent slow-down in the rate of

longevity improvement has reduced the expected income from the reinsurer (‘the floating leg’) but the

payments made to the reinsurer (‘the fixed leg’) have not changed because these were fixed when the

expected cost of future payments was higher. After 1 January 2020, the Company’s reinsurance

counterparty risk increased due to additional annuity reinsurance with Lloyds Banking Group.

C.3.4 Risk management and mitigation

The table below sets out the specific risk management and risk mitigation approaches the Company

uses in respect of its credit risk exposures.

Risk Mitigation Description

Risk Appetite Statements covering the Company’s approach towards credit risk.

Economic Capital

Economic Capital held on the Company’s regulatory balance sheet in

respect of each of its material credit risk exposures (derived using the

Solvency II Standard Formula approach).

Investment

Guidelines: Limit

Structures

The Investment Guidelines for each of the Company’s investment portfolios

include credit-related exposure limits which constrain the assets permitted

within each portfolio.

Asset Optimisation

Optimisation of assets within specific portfolios, including the sale of assets

which result in a disproportionate or unwanted level of exposure to credit

spread risk or concentration risk relative to the objectives of those portfolios.

Matching Adjustment Adherence to the requirements necessary to maintain approval to use the

MA, which includes close Asset Liability Management.

Collateral

Arrangements See below for the reporting period.

Risk Monitoring Regular senior management and Board level review of the risk measures

discussed in section C.3.2.

Not all of the above risk management and mitigation approaches are used in respect of all of the

Company’s different credit risk exposures. The Company does not anticipate making any material

changes to its current approach to managing and mitigating its credit risk exposures. In particular, it

currently has no plans to either introduce any new or stop using any existing risk mitigation practices for

the business in force during the reporting period. There will be changes post 1 January 2020 in line with

the acquired business of Equitable Life.

Reinsurer

Net exposure 2019 (£m)

Base Longevity Stress (20% stress on

mortality rates)

TRZ - 12.6

RGA Global (42.6) (24.6)

London Life (1.5) 1.7

Swiss Re 3.9 3.9

Pacific Life 2.7 2.7

Hanover Re 5.3 5.9

Page 47: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 47 of 77

C.4 Operational Risk

C.4.1 Risk exposures

The Company has identified 11 operational risk categories, as follows: business operations;

financial/actuarial; legal/regulatory; outsourcing; investment; governance; people; IT; cyber security;

financial crime; and external. All operational risks identified by the Company are allocated to one of

these categories.

All material operational risk exposures are recorded in the Company’s functional risk registers and are

allocated a first line risk owner.

C.4.2 Risk measures

The Company monitors and assesses operational risk using the tools in the following table.

Measurement

Tool Measure

Risk and Control

Self-Assessment

Process

Operational risk exposures are identified and assessed as part of a periodical

cycle in place within the Company. This includes: a description of risks, the causes

and consequences; a gross risk assessment of impact and likelihood; a list of

‘prevention and detection’ controls; and a ‘net’ assessment taking into

consideration the effectiveness of the controls in place.

Key Risk

Indicators

The Company uses a wide range of KRIs to measure operational performance

and areas of operational risk, which include service levels, business/IT incidents,

financial crime, third-party performance and staff/resourcing.

Loss Data The Company collects and reports loss information and data around operational

risk events that have crystallised or nearly crystallised (so-called ‘near misses’).

Scenario Testing

Potential effect on the Company's solvency position and risk profile of alternative

scenarios involving operational risk events or deteriorations in operational

performance/controls.

C.4.3 Risk concentration

Given the wide scope of operational risk, any concentration of operational risk is monitored and

managed as per sections C.4.2 and C.4.4.

Page 48: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 48 of 77

C.4.4 Risk management and mitigation

The table below sets out the specific risk management and risk mitigation approaches the Company

uses in respect of its operational risk exposures.

Risk Mitigation Description

Risk Appetite Statements covering the Company’s approach towards operational risk.

Individual

controls Individual controls applied to specific operational activities.

Control

Processes Operational controls in place to manage operational risks.

Control Policies Record of the objectives, processes, responsibilities and reporting procedures in

respect of the Company's operational controls.

Management

and Monitoring

Review of operational risk reporting and management information, including

regular senior management and Board level review of the risk measures discussed

in section C.4.2.

Compliance

Monitoring Compliance reviews of operational processes.

Root Cause

Analysis

The Company investigates business incidents and upheld complaints, to ensure

that the root causes have been identified and that mitigating actions are

implemented.

Assurance Reviews of operational areas by Internal Audit.

Economic

Capital

Economic Capital held on the Company’s regulatory balance sheet in respect of

the Company’s overall exposure to operational risk (derived using the Solvency II

Standard Formula approach).

Not all of the above risk management and mitigation approaches are used across all of the Company’s

individual operational risk exposures.

The Company does not anticipate making any material changes to its current approach to managing

and mitigating its operational risk exposures. However, post 1 January 2020, the Company will be

adapting its approach in line with the increased risk as it integrates the acquired business of the Equitable

Life.

C.5 Liquidity Risk

C.5.1 Risk exposure

Liquidity risk is not one of the Company’s primary risk exposures on the basis that:

The Company’s in-payment annuities, which form the bulk of the non-linked contracts in force,

may not be surrendered or transferred at the policyholder’s option.

There are other policies which do include the right to surrender or transfer the policy on demand,

with the surrender or transfer value calculation method being determined by the policy

conditions.

However, the majority of such contracts are unit-linked, where:

The liabilities are matched by assets held in internal linked funds; and

All linked assets are readily marketable, except for direct properties held in the property

funds, where the Company has the right to defer payment of surrender or transfer values

by up to six months.

Page 49: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 49 of 77

C.5.2 Risk measures

In order to monitor and measure its exposure to liquidity risk, the Company measures the level of

investment in cash and gilt holdings with reference to a defined liquidity buffer. The investment

management reports from the Company’s investment managers also include metrics that allow the

Company to monitor adherence to the liquidity-related limits within each portfolio’s investment

guidelines.

C.5.3 Risk management and mitigation

The Company has an active liquidity risk management process. The table below sets out the specific risk

management and risk mitigation approaches the Company uses in respect of its exposure to liquidity risk.

Risk Mitigation Description

Risk Appetite Statements covering the Company’s approach towards liquidity risk.

Close Asset

Liability

Matching

The Company has a process in place to ensure that its asset holdings are

appropriate to the nature, term, currency and liquidity of its liabilities.

Investment

Guidelines:

Limit Structures

The Investment Guidelines for each portfolio set out limit structures for the assets

permitted within the portfolio. Liquidity risk is an important factor in the choice of

available assets.

NPF (Non-MA)

Cash Buffer The NPF is required to hold in excess of £10m gilts and/or cash at all times.

The Company does not anticipate making any material changes to its current approach to managing

and mitigating its liquidity risk. In particular, it currently has no plans to either introduce any new or stop

using any existing risk mitigation practices.

C.5.4 Expected Profit in Future Premiums

The Company calculates Expected Profit in Future Premiums (“EPIFPs”) in accordance with the

requirements of Article 260 of the Solvency II Delegated Acts. The regulation stipulates that the EPIFP shall

be set equal to the difference between:

1. BEL calculated in accordance with Solvency II requirements; and

2. BEL calculated under the assumption that future premiums are not received for any reason other

than the insured event having occurred (i.e. all policies are effectively treated as paid up at the

valuation date).

EPIFP is calculated separately for different Homogenous Risk Groups (“HRGs”), provided that grouped

contracts are also homogenous in relation to EPIFP. Within the same HRG, profit-making policies are used

to offset loss-making policies.

As at 31 December 2019, the value of the Company’s total EPIFP was £8.5m; the vast majority of which

was from unit-linked business.

C.6 Stress and Scenario Testing Results

Stress testing

The Company stress tests its solvency balance sheet to calculate the SCR; ensuring that it has sufficient

capital to withstand an extreme 1 in 200 year event measured over a 1 year time horizon. Stress testing is

performed to establish the sensitivity of the Company’s solvency to individual extreme events and

quantifies each risk exposure in terms of capital impact, where capital impact is defined as the change

in the value of the Company’s asset holdings less the change in the value of its best estimate liabilities.

Page 50: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 50 of 77

As described earlier, the largest risks that the Company is exposed to are longevity, lapse, expense,

spread and concentration. The 1 in 200 year event assumptions and percentage change in Own Funds

is set out in the following table.

Sensitivity Testing

Risk Calibration

%

change

in own

funds

Longevity Instantaneous permanent decrease of 20% in mortality rates. -6.6%

Lapse The more onerous of: i) a permanent 50% increase in lapse rates, ii) a

permanent 50% decrease in lapse rates; and iii) a mass lapse of 40%. -5.2%

Expense Instantaneous permanent: i) increase of 10% to future expenses: and

ii) increase of 1% point to the expense inflation rate. -3.7%

Spread An instantaneous relative decrease in the value of each bond

varying between 0% and -70% (by credit quality and duration. -15.9%

Concentration An instantaneous decrease in the value of the assets corresponding

to the single name exposures varying by credit quality. -2.0%

The Company also tests the sensitivity of the Company’s solvency to adverse experience.

The following table summarises the results of the Company’s sensitivity testing in respect of its material

quantifiable risks. This testing was carried out as part of the Company’s 2019 ORSA analysis. The results

include the change in Own Funds and the change in the Company’s SCR under each sensitivity, and

are shown in respect of the forecast balance sheet as at 31 December 2019.

Risk Class Risk Calibration

%

Change

in Own

Funds

%

Change

in SCR

Life

Underwriting Expense

Instantaneous and permanent 5% increase in

total expenses. (5.6%) 2.1%

Market

Interest

rate (Up)

50 basis points (“bps”) upward parallel shift to

risk-free yield curve. 1.1% (4.4%)

Interest

rate

(Down)

50 bps downward parallel shift to risk-free yield

curve. (1.4%) 5.9%

Equity Instantaneous 10% decrease in equity prices. (0.1%) (3.5%)

Spread

Credit spread widening: AAA +2 bps, AA +10

bps, A +30bps, BBB and below +60 bps.

(1.2%) (3.1%)

MA: full offsetting movement.

C.7 Prudent Person Principle: investments

The Board and Investment Committee have delegated authority for investment decision making and

management to external investment managers. Each investment manager operates subject to:

Constraints set out in contractual Investment Management Agreements, which were developed

with reference to the requirements of the Prudent Person Principle; and

The oversight of the Company’s ALCO.

Page 51: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 51 of 77

The Company has a number of documents, for example, guidelines, policies, agreements and reports,

which collectively support and reinforce compliance with the EIOPA guidelines in respect of the Prudent

Person Principle. The key documents are as follows:

Investment Policy and Strategy;

Investment Management Agreements with external investment managers;

Asset Liability Matching reporting;

MA portfolio documentation;

Conflicts of Interest Policy;

Investment Governance Framework; and

Portfolio reporting produced the Investment Oversight Team for ALCO and the Board based

upon information from the Company’s external investment managers.

The performance of and risk associated with Company’s investments are subject to regular reporting to

ALCO, the Risk and Compliance Committee, the Investment Committee and compliance/investment

oversight reviews.

C.8 Any Other Material Information

COVID-19

The outbreak of COVID-19 has the potential to impact the risks that the Company faces, although, as

detailed below, it is expected that all the risks will be managed and mitigated using the methods already

used by the Company and as described above.

Underwriting Risk

The Company has limited direct exposure to an increase in mortality rates as a result of COVID-19. The

Company’s exposure to mortality risk is limited due to the low exposure to term assurance business and

the use of reinsurance.

Overall, an increase in mortality would not adversely affect the solvency or liquidity positions of the

Company.

Market Risk

The volatility in the external environment due to COVID-19 does have an impact on the Company’s

solvency due to changes in interest rates and equity markets and as described above. The fall in the

value of equity markets will reduce the value of annual management charges and falls in interest rates

increase the risk margin.

These changes are monitored regularly.

Credit Risk

As a result of the Part VII transfer from Equitable Life, the Company has a reassurance agreement with

Lloyds Banking Group and this is the Company’s largest exposure to downgrades. The COVID-19 outbreak

has not caused any interruption to the operation of this reinsurance and the Company continues to

monitor the financial strength of all its reinsurers. The Company continues to monitor all credit risk

exposures.

Operational Risk

Following government guidance, new measures and controls have been put into place for the

Company, making the safety and well-being of staff a priority; by stopping all non-essential business

travel, and providing IT support to enable staff to work from home.

This brings with it changes to the operational risks that the Company faces, however, these are managed

through the Company’s current processes.

Liquidity Risk

There has not been a material change to the liquidity risk that the Company faces due to COVID-19.

However, this will be monitored in line with the approaches used by the Company to manage and

mitigate liquidity risk and as described above.

Page 52: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 52 of 77

D. VALUATION FOR SOLVENCY PURPOSES

D.1 Assets Valuation Basis, Methods and Main Assumptions

The table below summarises, for each material asset class, the values according to Solvency II and on

an UK GAAP basis as at 31 December 2019.

£ million Statutory

Reporting

Elimination

of

Intangible

assets

Reallocation

Of Assets

Reversal

of UK

GAAP

Technical

provisions

Solvency II

Technical

Provisions

Solvency II

Assets

Goodwill (30.8) 30.8 -

Intangible assets 53.8 (53.8) -

Property, plant and equipment

held for own use 3.6 3.6

Investments (other than assets held

for index-linked and unit-linked

contracts)

1,114.9 1,125.5

Equities 4.4 4.4

Bonds 986.7 10.6 997.3

Collective investment

undertakings 106.3 106.3

Derivatives 17.2 17.2

Deposits other than cash

equivalents 0.3 0.3

Assets held for index-linked and

unit-linked contracts 644.1 644.1

Loans and mortgages 0.7 0.7

Reinsurance recoverable 17.3 (17.3) (34.5) (34.5)

Receivables (trade, not insurance) 21.7 (10.6) 11.1

Cash 61.8 61.8

Total Assets 1,887.2 (23.0) - (17.3) (34.5) 1,812.3

D.1.1 Investments, including held for unit-linked contracts

The Company’s investments comprise government bonds, corporate bonds, collective investment

undertakings, derivatives, deposits other than cash equivalents, other investments and investments held

for unit-linked contracts.

a) Active market

Quoted price: Fair values of assets traded on active markets are determined using quoted market

prices when available. An instrument is regarded as quoted in an active market if quoted prices are

readily and regularly available from an exchange, dealer, broker, industry group, pricing service or

regulatory agency, and those prices represent actual and regularly occurring market transactions

on an arm’s length basis between a willing seller and a willing buyer. For financial instruments traded

in active markets, quotes received from external pricing services represent consensus prices, i.e.

using similar models and inputs resulting in a very limited dispersion.

Page 53: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 53 of 77

Investments, including held for Unit-linked Contracts

b) Active versus inactive markets: financial instruments

Equity instruments quoted on exchange traded markets and bonds actively traded on liquid

markets are generally considered as being quoted in an active market when: quotes that represent

consensus are regularly provided by external pricing services with limited dispersion; and prices are

readily available. Liquidity for debt instruments is assessed using a multi criteria approach, including

the number of quotes available, the place of issuance and the evolution of the widening of bid/ask

spreads.

A financial instrument is regarded as not quoted in an active market:

If there is little observation of transaction prices as an inherent characteristic of the instrument;

When there is a significant decline in the volume and level of trading activity;

In case of significant illiquidity; or

If observable prices cannot be considered as representing fair value because of dislocated

market conditions. Characteristics of inactive markets can therefore be very different in nature,

inherent to the instrument or indicative of a change in the conditions prevailing in certain

markets.

c) Assets and liabilities not quoted in an active market

The fair values of assets and liabilities that are not traded in an active market are estimated:

Using external and independent pricing services; or

Using valuation techniques.

d) No active market: use of external pricing services

External pricing services may be fund asset managers in the case of investments in funds. To the

extent possible, the Company collects quotes from external pricing providers as inputs to measure

fair values. Prices received may form tight clusters or dispersed quotes which may then lead to the

use of valuation techniques. The dispersion of quotes received may be an indication of the large

range of assumptions used by external pricing providers given the limited number of transactions to

be observed or reflect the existence of distress transactions. In addition, given current market

conditions since the financial crisis and the inactivity of some markets since then, many financial

institutions ceased to be engaged in the origination or trading of structured assets deals and are as

a result no longer in a position to deliver meaningful quotes for such assets.

e) No active market: use of valuation techniques

The objective of valuation techniques is to arrive at the price at which an orderly transaction would

take place between market participants (a willing buyer and a willing seller) at the measurement

date.

Valuation technique models include:

Market approach: the consideration of recent prices and other relevant information

generated by market transactions involving substantially similar assets or liabilities;

Income approach: use of discounted cash flow analysis, option pricing models, and other

present value techniques to convert future amounts to a single current (i.e. discounted)

amount; and

Cost approach: the consideration of amounts that would currently be required to construct

or replace the service capacity of an asset. Valuation techniques are highly subjective in

nature, and significant judgment is involved in establishing fair values. The use of valuation

techniques and the related underlying assumptions could produce different estimates of fair

value. Valuations are determined using generally accepted models (discounted cash flows,

Black & Scholes models, etc.) based on quoted market prices for similar instruments or

underlying factors (index, credit spread, etc.) whenever such directly observable data are

available and valuations are adjusted for liquidity and credit risk.

Page 54: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 54 of 77

Investments are classified into three tiers of fair value hierarchy based on the characteristics of inputs

available in the marketplace. The following valuation hierarchy is used:

Level 1: quoted prices in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included with Level 1 that are observable for the asset

or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and

Level 3: inputs for the asset or liability that are not based on observable market data (that is,

unobservable inputs).

Except as noted below, all assets are classified as Level 2 assets under the fair value.

The Company holds derivatives (swaptions) totalling £17.2m on its balance sheet to back its GAO

liabilities that are classed as Level 3 under the fair value hierarchy on the basis that there are no

observable (‘publicly available’) prices. The swaptions are Over the Counter (“OTC”) instruments, for

which the fair value is provided to the Company by the counterparty. The fair value of such swaptions is

assessed by the Company for reasonableness using observable market inputs, including interest rates

and market volatility. The sensitivity of these assets is such that an increase in risk-free rates of 100 bps

would decrease the value by £7.9m, which would be offset by a decrease in the liabilities they are

backing of £6.7m. The assets are not materially sensitive to other market movements.

The other investments include one equity holding of £4.4m and unit-linked assets of £1.2m that are also

classified as Level 3 under the fair value hierarchy on the basis there are no observable (‘publicly

available’) prices. These assets are not materially sensitive to changes in interest rates or other market

movements.

f) Valuation and Recognition of assets

There are no differences between the bases, methods and main assumptions used in the valuation for

solvency purposes and those used for valuation in the Financial Statements of the Company except for:

- Goodwill and Intangibles – generally valued at Nil

- Reinsurance recoveries which are treated as an asset.

Asset values in the Solvency II Balance Sheet are shown including accrued interest thereon, in

accordance with EIOPA guidelines, whereas In the Financial Statements, the accrued interest is shown

separately. This is a difference in presentation and not a valuation difference. There have been no

changes to the recognition and valuation bases used, or to estimations, during the reporting period.

D.1.2 Credit ratings

Credit ratings are used for the calculation of the MA and in the relevant modules of the Standard Formula

SCR calculations

For these purposes, credit ratings are obtained from External Credit Assessment Institutions (“ECAIs” or

‘rating agency’) nominated by the Company. Once a rating agency has been nominated, ratings

provided by that agency are used consistently by the Company across calculations. If more than one

rating is available from the nominated rating agencies, the Company uses the second-best rating.

The Company’s current nominated rating agencies are Standard & Poor’s, Moody’s, and Fitch. The use

of three rating agencies provides good coverage of the Company’s corporate bond portfolio and limits

the number of unrated bonds. The agency AM Best (which focuses on the insurance industry) is also

considered for reinsurance counterparties only.

Any internally rated bonds are assessed by the Board in relation to the appropriateness of the ratings

assigned to the bonds, and used in the calculation of the MA only. Any internally rated bonds are treated

as unrated in the Standard Formula spread risk modules.

Page 55: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 55 of 77

D.1.3 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and demand deposits with banks aggregating

£61.7m, where they have maturity dates of three months or less from date of acquisition.

D.1.4 Intangible assets

Under Solvency II, only intangible assets related to the business in force, that are separable and for which

there is evidence of transactions for the same or similar assets, indicating that they are saleable in the

market place, are recognised. As a result of Solvency II principles, goodwill and other intangible assets

recognised under UK GAAP have no value in the Solvency II consolidated balance sheet.

Intangible assets comprising AVIF policies and negative goodwill, both arising from the transfer of

acquired business from RMIS, are fair valued at £23.0m for UK GAAP purposes and nil under Solvency II.

D.1.5 Property held for own use and other fixed assets

Under Solvency II, property, plant and equipment held for own use is recognised at fair value. Asset

components are depreciated over their estimated useful lives under UK GAAP, and a reversible

impairment is recognised if specific conditions are met. Property held for own use is stated at its revalued

amount of £3.6m. The fair value is reliably measured and provided by an external professional valuation

in accordance with market practice and the guidelines of the Royal Institute of Chartered Surveyors.

D.1.6 Prepayments and accrued income

On a UK GAAP basis, accrued income aggregating £13.1m is disclosed under ‘Prepayments and

accrued income’. Under Solvency II, accrued income is required to be included under the relevant

investments category and has been reclassified under government bonds and corporate bonds.

D.1.7 Reinsurance recoverable and receivables

Reinsurance recoverable related to insurance Technical Provisions are calculated in accordance with

Solvency II valuation principles. The amounts recoverable from reinsurers is based on gross provision,

having due regard to collectability. As at 31 December 2019, the value of the Company’s reinsurance

recoverable based upon UK GAAP was a net payable £17.6m, disclosed as an asset of £17.3m and

liability of £34.9m in accordance with UK GAAP.

The resulting reinsurance cash flows are adjusted to allow for the risk of a reinsurer default. Standard &

Poor’s and AM Best are the current nominated rating agencies for this purpose.

Consistent with Solvency II requirements, the Company treats the value of these reinsurance

arrangements as an asset, where the valuation is based on the projected liabilities associated with the

reinsurance on a gross of reinsurance basis. On a Solvency II valuation basis there was a liability value of

£34.5m, which has been reported in the table shown in section D.1 as a negative asset to be consistent

with the Solvency II reporting within Quantitative Reporting Template (“QRT”) S.02.01.02. This comprises a

negative asset of £46.3m representing the net position of the longevity swaps (see section D.1.8) offset

by a recoverable amount of £11.8m in respect of Assurance products.

Page 56: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 56 of 77

D.1.8 Longevity swaps

The Company holds a number of longevity swaps for its annuity portfolios, where the payments to the

reinsurance counterparties are made on the basis agreed at the outset of the reinsurance treaty. In

return, payments based on the actual experience of the corresponding annuity portfolios are made by

the reinsurers to the Company over the remaining lifetime of the annuities.

The value of these longevity swaps is calculated as the difference between the present value of the

variable annuity payments received from the reinsurer and the present value of the fixed annuity

payments (agreed at the treaty outset) made to the reinsurer, where discounting is at the basic risk-free

interest rate term structure.

Allowance for reinsurer default is made to the cash flows using Solvency II probability of default for

corporate bonds, with an allowance for recovery given default, as prescribed by EIOPA.

D.1.9 Receivables (trade, not insurance)

Cost is used as an approximation of fair value for current cash settled receivables and payables, having

due regard to collectability. The amount of £8.7m on the UK GAAP basis comprises largely cash collateral

received under derivative arrangements from counterparty of £7.8m.

D.1.10 Loans on policies

Amortised cost is used as an approximation of fair value for loans on policies for both UK GAAP and

Solvency II, having due regard to collectability. Loans on policies had an aggregate value of £1m.

D.1.11 Deferred taxation

Differences arise between Statutory Reporting and Solvency II deferred tax balances due to differences

in underlying valuation principles for assets and liabilities. However, recognition and valuation principles

of deferred taxes under both UK GAAP and Solvency II frameworks are similar.

Deferred tax assets and liabilities emerge from temporary differences with tax values of assets and

liabilities, and, when applicable, from tax losses carry forwards.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be

available to offset the temporary differences, taking into account the existence of tax groups and any

legal or regulatory requirements on the limits (in terms of amounts or timing) related to the carry forward

of unused tax losses or the carry forward of unused tax credits.

Projections made for future taxable profits are broadly consistent with assumptions used for other

projected cash flows. The recoverability of deferred tax assets recognised in previous periods is

reassessed at each closing period.

The deferred tax assets and liabilities are netted off if the counterparty is the same tax authority and there

is an ability to settle net.

D.1.12 Insurance and intermediary receivables

As a 31 December 2019, insurance receivables for premiums and recovery of pension relief at source

were valued at £0.2m for UK GAAP and Solvency II purposes.

Page 57: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 57 of 77

D.2 Technical Provisions

Liabilities Solvency II

Statutory

Reporting

Technical Provisions – life (excluding index-linked and unit-linked) (824.7) (888.9)

Technical Provisions – health (similar to life) (0.3) -

Technical Provisions calculated as a whole (0.3) -

Best Estimate - -

Technical Provisions – life (excluding health and index-linked and

unit-linked) (824.4) (888.9)

Best Estimate (801.6) -

Risk Margin (22.8) -

Technical Provisions – index-linked and unit-linked (635.9) (640.9)

Technical Provisions calculated as a whole (635.5) -

Best Estimate (0.4) -

Other Technical Provisions – Reinsurance - (34.9)

Provisions other than Technical Provisions (1.7) (1.7)

Pension benefit obligations (3.3) (3.3)

Deposits from reinsurers (5.8) (5.8)

Deferred tax liabilities (14.2) (0.3)

Insurance and intermediaries payables (9.0) (9.0)

Reinsurance payables (0.6) (0.6)

Payables (trade, not insurance) (14.4) (14.4)

Any other liabilities, not elsewhere shown - (130.7)

Total liabilities (1,509.6) (1,730.5)

Excess of assets over liabilities 302.7 156.7

D.2.1 Material lines of business

Under Solvency II, Technical Provisions are split amongst Life With-Profits Participation, Linked Life and

Other Life Insurance.

Technical Provisions are measured using a twofold ‘building block’ approach:

BEL; and

Risk Margin for non-hedgeable risks, which is added to the BEL. The valuation of Technical

Provisions requires in-depth analysis of the underlying obligations, collection of qualitative and

quantitative information, projection tools and models, and expert judgement in a number of

areas.

Page 58: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 58 of 77

The table below shows the segmentation of the Utmost business into lines of business for Solvency II

purposes.

Category Description

Life With-Profits

Participation

All products falling within this category are within one of the WPSFs.

Some business within the WPSFs falls within the Other Life Insurance category.

Linked Life This includes unit-linked business, but excludes index-linked annuities and

index-linked funeral plan business, which increase in line with inflation indices.

Other Life Insurance This includes all other business, including annuities and funeral plan business.

The table below sets out the Technical Provisions as at 31 December 2019 for each of the Company’s

sub-funds, including the TMTPs as at 31 December 2019.

Technical Provisions (£m)

Sub-Fund BEL Risk Margin Technical Provision

Non-Profit Fund 1,230.2 25.2 1,255.4

WPSF1 13.0 0.0 13.0

WPSF2 12.9 0.0 12.9

WPSF4 108.2 0.2 108.4

WPSF6 101.7 0.3 102.0

Company TP Before TD 1,466.0 25.8 1,491.8

TD (unaudited) (28.2) (3.0) (31.2)

Total Company After TD (unaudited) 1,437.8 22.8 1,460.6

A summary by line of business is provided below.

Technical Provisions £m

Sub-Fund BEL Risk Margin Technical

Provisions

Life With-Profits Participation 220.6 0.6 221.1

Linked Life 636.4 0.0 636.4

Other Life Insurance 609.1 25.2 634.3

Total Company Before TD 1,466.0 25.8 1,491.8

TD (unaudited) (28.2) (3.0) (31.2)

Total Company After TD (unaudited) 1,437.8 22.8 1,460.6

Other Life Insurance includes NPF policies in both non-profit and WPSFs.

The Risk Margin and the TMTPs are both calculated at a sub-fund level.

Comparison with Financial Statements

The bases, methods and assumptions used for the Solvency II regulatory valuation of the Company’s

Technical Provisions uses BEL with a Risk Margin, whereas valuation for financial reporting under UK GAAP

uses a more prudent basis. Other sources of differences between the two bases include differences due

to discount rates and allowance for contract boundaries within the calculation of the BEL.

Page 59: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 59 of 77

Whilst there is prudence throughout the UK GAAP statutory basis, explicit margins of prudence exist, as

follows:

An explicit prudence margin of 5% on ongoing expenses, and a 5% margin on one-off expenses

has been allowed for. In addition, a more prudent approach to the calculation of diseconomies

of scale has been adopted. The overall margin for prudence (explicit and implicit) exceeds 10%;

Assurance and annuities in payment assumptions have a margin of 10% with this increasing to

20% where there are limitations on the data. There is further prudence in the long-term

improvement rates for annuities in-payment (0.25% pa increase in the rate of improvement);

No reduction is made for persistency; and

The assumption for the take-up of GAOs contains additional prudence in that the take-up rate

increases linearly to 95% over 20 years.

D.2.2 Valuation methodology

Under Solvency II, the investment contract benefits and insurance contract liabilities required by UK GAAP

are replaced by an assessment of the Technical Provisions, comprising BEL and the Risk Margin. The table

below shows a comparison between the two reporting metrics. The Solvency II values are after allowance

for TMTPs which are not subject to audit.

Technical Provision Differences

£ millions

Statutory

Accounts

FRS102

Reallocation

Recognition

of

Discretionary

Elements

Accounting

Policy

Differences

Solvency II

Value

Unit-linked Technical

Provisions

-BEL 641.0 27.0 (32.1) 635.9

Life and Health Technical

Provisions

-BEL 888.8 (27.0) 66.0 (125.9) 801.9

Risk Margin 22.8 22.8

Gross Technical Provisions 1,529.8 - 66.0 (135.2) 1,460.6

Reinsurance

-BEL 17.6 16.9 34.5

Net Technical Provisions 1,547.4 - 66.0 (118.3) 1,495.1

The reallocation column shows differences in the categorisation of liabilities between the UK GAAP

statutory accounts and Solvency II. The values shown are based on the basis used for the UK GAAP

statutory accounts. The accounting policy differences reflect the differences between the two bases

due to moving to the Solvency II basis and methodology. The reassessment of participations shows the

allowance for future discretionary benefits allowed for within the calculation of the BEL.

* Risk Margin is net of TMTPs, which is applied to the Risk Margin first before Technical Provisions.

Page 60: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 60 of 77

Level of uncertainty in the technical provisions

The projection of the monthly cash flows used in the assessment of the Technical Provisions and Risk

Margin requires management to make assumptions about future demographic and economic

experience. The assumptions are based on historical experience, expected future experience, and

various other factors that are believed to be reasonable under the circumstances. The assumptions are

reviewed on a regular basis. Uncertainty arises from actual future experience being different from that

assumed.

For the Company, the key areas of uncertainty relate to the items listed below.

Life underwriting risk, which includes mortality experience, longevity experience, and

policyholder behaviour in respect of exercising guarantees and options;

Market conditions, including change in credit spreads, long-term interest rates and equities; and

Future expenses incurred in servicing insurance obligations, including administrative, investment

and claims management expenses plus provision for related overheads.

Provision for future expenses: assumptions

The expenses contain a degree of uncertainty in relation to the future development of the business. The

assumptions used to determine the Solvency II Technical Provisions and SCR have been set based upon

the business plan for Utmost without taking into account any cost benefits that might arise from future

acquisitions. In doing so, the Board has set the expense assumptions taking into consideration the impact

on expenses of adopting alternative scenarios and strategies (including outsourcing administration or

managing the diseconomies that arise as the business runs off).

Best estimate liabilities

The BEL correspond to the probability-weighted average of future cash flows, including policyholders’

benefit payments, expenses, taxes, premiums related to existing insurance and reinsurance contracts,

taking into account the time value of money (i.e. by discounting these future cash flows to present value).

The calculation of the BEL is based upon up-to-date reliable information and realistic assumptions. The

cash flow projection model used in the calculation includes all the cash in- and out-flows required to

settle the insurance and reinsurance obligations over their lifetime. The BEL is recognised on a gross of

reinsurance basis, without deduction of amounts recoverable from reinsurance contracts

Appendix A shows the material assumptions used to calculate the BEL for the Company as at 31

December 2019. In particular, it covers the assumptions used for interest rates, inflation, mortality,

expenses and option take-up rates.

The model discounts these monthly cash flows using the Solvency II basic risk-free term structure of interest

rates applying at the valuation date, prescribed by EIOPA, to calculate the BEL. For the MA portfolios

(described in section D.2.3), the corresponding MA is added to the basic risk-free curve at all durations.

The same model is used to project the reinsurance premiums and claim cash flows, which are then

discounted in the same way to determine the value of the reinsurance asset.

Expenses

Expenses include administrative, investment management, claims management and acquisition

expenses which relate to recognised insurance and reinsurance obligations. The assumptions underlying

expense projections are consistent with the Company strategy, taking into account future new business

and any change in expenses as decided by management. The cash flow projection model allocates

the total annual (business-as-usual) budgeted expenses across the policies to which they relate.

Investment management charges are based on the level of assets backing Technical Provisions, and unit

costs are based on the business-as-usual budget (net of charges received from the with-profits sub-funds)

and the number of policies in force at the valuation date.

Page 61: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 61 of 77

In setting the expense assumptions, the Company has used its view on the expected future costs. The

sensitivity of the Company to changes in expenses can be seen in the unaudited section C.7.

Future discretionary benefits

In line with Solvency II requirements, the BEL for the Company’s with-profits business contains an

allowance for FDBs: the payment of bonuses that are expected to be declared in the future. FDBs consists

of future reversionary bonuses, terminal bonuses and other non-guaranteed bonuses.

For WPSF1, the FDB is based on the asset share plus the cost of guarantees less the best estimate value of

the corresponding guaranteed liabilities. Where asset shares are not available, a proxy for the asset share

is calculated by scaling the Bonus Reserve Value (“BRV”) for each contract by the average increase in

the asset shares that are available for the similar type of product and year of inception.

For WPSF2, WPSF4 and WPSF6, asset shares are not available and therefore a prospective BRV approach

is used. An iterative surplus minimisation process is initially carried out, which searches for a terminal bonus

rate that, when applied, results in a BRV that matches the (net of current liabilities) asset value for each

fund (subject to a tolerance). For these funds, the FDB is calculated to be the value of the assets less the

value of the guaranteed liabilities.

Manual reserves

The Company determines the value of certain liabilities (referred to as ‘manual reserves’) outside of its

policy level cash flow projection model. The cash flows determined in respect of each manual reserve

are imported into the model so that they can be included in the final BEL calculation as appropriate.

Allowance for deferred tax asset

The approach is a simplification of the underlying tax calculation because the amount is immaterial and

assumes that full tax relief is available on all future expenses.

Risk Margin

The Risk Margin is defined as the cost of non-hedgeable risk, i.e. a margin in addition to the expected

present value of liability cash flows required to manage the business on an ongoing basis. It is deemed

to be the present value of the cost of future economic capital requirements for non-hedgeable risks. A

best estimate assumption is defined as one where there is the same probability that the actual

experience develops more or less favourably than the assumption. It is neither a prudent nor an optimistic

assumption. It is set at a level that is neither deliberately overstated nor deliberately understated. Due to

the inherent uncertainties, if two assumptions are equally reasonable the more prudent one is retained.

In line with Solvency II requirements, the Company calculates the Risk Margin by determining the

expected cost of providing capital to cover the non-hedgeable part of its SCR over the remaining lifetime

of the in-force business.

The Company assumes that all market risks are hedgeable and therefore excludes them from the SCR

used in the Risk Margin calculation. Underwriting, operational and counterparty default risks are

considered non-hedgeable.

The Solvency II requirements define a hierarchy of simplifications which may be used to determine the

Risk Margin that remove the need to perform a full projection of the SCR (excluding hedgeable market

risk) at each future time period.

Rather than performing a full projection of the SCR at each future time period, the Company uses a

simplified approach to determine the Risk Margin for all risks apart from longevity. Under the simplified

methodology, each component of the Basic Solvency Capital Rate (“BSCR”) (excluding market risk) is

projected by assuming that the initial value runs off in line with an appropriate component of the BEL. For

the longevity risk sub-module, instead of using a component of the BEL to estimate future risk capital, a

full projection of the longevity risk capital is carried out.

Page 62: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 62 of 77

This approach is consistent with Method 1 of the Hierarchy of Simplifications outlined in the Solvency II

Guidelines.

To arrive at the Risk Margin, the projected non-hedgeable SCRs at each future time-step are multiplied

by a 6% cost of capital rate and discounted using the Solvency II basic risk-free term structure of interest

rates

Consistent with Solvency II rules, the Company’s Risk Margin is calculated without taking credit for the

effects of the MAs in NPF1 and NPF2.

D.2.3 Matching Adjustment

The following table summarises the Company’s two MA portfolios as at 31 December 2019.

MA Portfolio Liabilities at 31 December 2019 (£mi)

Contract Type Contracts BEL

(with MA)

BEL

(no MA)

Annuities (NPF MA1) 26,836 468.0 514.8

Funeral Plan (NPF MA2) 14,151 69.7 70.5

Total 40,987 537.7 585.3

In each of the two MA portfolios, the liabilities and the assets held to match those liabilities satisfy the

specific requirements that must be met in order to apply the MA.

For each MA portfolio, the corresponding MA is added to the basic risk-free term structure of interest rates

at all durations. The adjusted interest rate curve is then used to discount the BEL cash flows projected to

emerge in that portfolio.

No allowance for the MA is made in the calculation of the Risk Margin in respect of the MA portfolios,

and the MA is not applied when discounting the reinsurance cash flows associated with this business.

The table below sets out the MA used in the 31 December 2019 valuation in respect of each of the two

MA portfolios.

Matching Adjustment Rates

Component Description NPF MA1 NPF MA2

Rate 1 Single annual discount rate that equates the

discounted value of the expected liability cash flows to

the market value of the assets held to match those cash

flows.

2.38% 1.06%

Rate 2 Single annual discount rate that equates the

discounted value of the expected liability cash flows to

the BEL calculated using the basic risk-free interest rate

term structure with no adjustments. 0.94% 0.96%

Fundamental

Spread

A component of credit spreads that reflects the cost of

downgrades and a long-term average spread

underpin. It varies by: currency, asset class, credit rating

and duration

0.43% 0.01%

Matching Adjustment 1.01% 0.09%

The following table summarises the assets held in the two NPF MA1 and NPF MA2 portfolios as at 31

December 2019.

Page 63: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 63 of 77

Assets in the MA portfolios (£m)

Asset Type Value at 31 December 2019 (£m)

NPF MA1 NPF MA2

Corporate bonds 410.6 2.4

Government bonds 132.4 71.5

Cash, Deposits and Other 9.2 1.7

Total 552.2 75.6

The table below shows the impact on the Company’s Solvency II Pillar 1 balance sheet as at 31

December 2019 of zeroing the MA.

Balance Sheet Component

Value at 31 December 2019 (£m)

with MA without MA Impact of MA

Assets 1,763.3 1,763.3 -

Technical Provisions (1,460.6) (1,508.2) 47.6

Own Funds 302.7 255.1 47.6

Restricted (With-Profits) Own Funds (18.2) (17.8) (0.3)

Tier II Restriction (33.1) (21.3) (11.9)

Eligible Own Funds 251.4 216.0 35.4

Solvency Capital Requirement 53.8 77.4 (23.6)

Solvency Ratio 467% 307% 161%

Minimum Capital Requirement 20.3 20.4 -

The benefit of the MA is largely due to the Company’s significant exposure to annuities in payment. The

combined value of the BEL in the two MA portfolios is £538m. Due to the long-term nature of these

liabilities, an uplift in the discount rate has a material impact on the BEL, reducing them by £48m.

D.2.4 Volatility Adjustment

As at 31 December 2019, the Company did not make use of the Volatility Adjustment for the purpose of

determining its Technical Provisions.

D.2.5 Transitional measures (Unaudited)

Transitional risk-free interest rate term: structure

As at 31 December 2019, the Company did not apply the transitional risk-free interest rate term structure

in the discounting of best estimate cash flows when calculating its Technical Provisions.

TMTPs (also referred to as the Transitional Deduction [“TD”])

Following the acquisition of the former RMIS insurance business, the PRA approved the Company’s

application to recalculate the TMTPs within its Technical Provisions. The Transitional Deduction (“TD”) is

not subject to audit.

The calculation of the recalculated TD was carried out in line with the Company’s TD recalculation policy,

in two stages:

Page 64: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 64 of 77

1. Calculation of an ‘unlimited’ TD set equal to the difference between the Technical Provisions on

a Solvency II and Solvency I Pillar 2 basis, with appropriate allowance for business run-off since 31

December 2015.

2. Calculation of a limitation on the TD, to ensure that the total Technical Provisions plus capital

requirements on a Solvency II basis, after the application of TD, are not lower than the equivalent

Solvency 1 bases (both Pillars 1 and 2).

The table below shows the impact of excluding the TD from the Company’s Solvency II Pillar 1 balance

sheet as at 31 December 2019.

Balance Sheet Component

Value at 31 December 2019 (£m)

with TMTP without TMTP Impact of

TMTP

Assets 1,763.3 1,763.3 -

Technical Provisions (1,460.6) (1,491.8) 31.2

Own Funds 302.7 271.5 31.2

Ring-Fenced Fund Restriction to Own

Funds (51.3) (51.3) -

Eligible Own Funds 251.4 220.2 31.2

Solvency Capital Requirement 53.8 53.8 -

Solvency Ratio 467% 409% 58%

Minimum Capital Requirement 20.3 20.4 0.1

D.3 Other Liabilities

The following section references the ‘current liabilities, other than Technical Provisions’ table in section

D.2.

D.3.1 Insurance and intermediaries payables

This balance of £9.0m comprises claims outstanding relating to insurance and participating investment

contracts. Death claims, maturities, annuity payments due and surrenders are recognised when due or

at the earlier of the date when paid or when policy ceases to be included in the Technical Provisions

(including for linked contracts).

The Company makes a provision for outstanding claims based on a realistic assessment of the likelihood

of payment, which varies in line with the age of the debt and the Company’s ability to make contact

with the policyholder.

D.3.2 Payables (trade, not insurance) and other liabilities

These payables of £14.4m comprise amounts which fall due within 12 months from the balance sheet

date and are considered to be held at fair value. These payables are due to employees, suppliers, public

entities and reinsurers, including £7.8m liability for collateral creditor held under derivative arrangements

with a counterparty.

D.3.3 Deposits from reinsurers

These comprise the liability to Hannover Re of £5.8m under the deposit back arrangement and is valued

in accordance with the agreement on a payable basis and considered as a fair approximation of the

fair value under Solvency II. The Company holds an equivalent amount of assets as collateral received,

which are included under Government Bonds, Corporate Bonds and Cash.

Page 65: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 65 of 77

D.3.4 Pension Scheme benefit obligations

As part of the transfer of business from RMIS on 1 April 2018, the Company entered into a Flexible

Apportionment Arrangement, whereby it was admitted as the principal employer to the defined benefit

pension scheme (“the Scheme”) and all RMIS Scheme liabilities were apportioned to the Company.

The Scheme has been closed to future accrual since June 2010.

The value of the Defined Benefit (“DB”) pension scheme is recognised on the liability side of the Solvency

II balance sheet and is calculated as the difference between:

the market value of assets backing the liabilities of the DB pension liabilities; and the DB pension

liabilities calculated under the International Accounting Standard 19 (“IAS 19”), including

International Financial Reporting Interpretations Committee 14 (“IFRIC 14”).

The valuation allows for the full cost of pensions equalisations (being the financial impact on the Reliance

Pension Scheme of benefits being provided on and from 17 May 1990 with the same normal retirement

age of 60 for male and female members and on and from 30 March 1995 with the same normal

retirement age of 65 for male and female members). The asset valuation is carried out by Schroder’s and

the value of the DB pension liabilities is calculated by Willis Tower Watson, an employee benefits

consultancy.

As at 31 December 2019, the DB pension scheme was in deficit valued at £3.3 million, applicable for both

UK GAAP and Solvency II purposes, as follows:

Pension Scheme assets £33.8m

Pension Scheme liabilities (£37.1m)

Deficit (£3.3m)

D.3.5 Accruals and deferred Income

Amounts of £1.7m relate to pensions mis-selling accrual reflected in both UK GAAP and Solvency II.

D.3.6 Reinsurance payables

As at 31 December 2019, the value of the Company’s reinsurance payables was £0.6m, for both UK GAAP

and Solvency II reporting.

D.3.7 Provisions other than Technical Provisions

Disclosed separately for UK GAAP purposes, the balance at 31 December 2019 of £1.7m has been

reclassified for Solvency II as a deferred tax liability.

D.3.8 Deferred taxation Liability

Differences arise between UK GAAP and Solvency II deferred tax balances due to differences in

underlying valuation principles for assets and liabilities. However, recognition and valuation principles of

deferred taxes under both UK GAAP and Solvency II frameworks are similar.

Deferred tax assets and liabilities emerge from temporary differences with tax values of assets and

liabilities, and, when applicable, from tax losses carry forwards.

The deferred tax liability is calculated by reference to temporary difference between the values ascribed

to assets and liabilities for UK GAAP and the value ascribed to those assets and liabilities under Solvency

II. The deferred tax liabilities under Solvency II include additional liabilities recognised in respect of positive

valuation differences between the Solvency II balance sheet and the UK GAAP statutory accounts.

Page 66: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 66 of 77

Projections made for future taxable profits are broadly consistent with assumptions used for other

projected cash flows. The recoverability of deferred tax assets recognised in previous periods is

reassessed at each closing period.

The deferred tax assets and liabilities are netted off if the counterparty is the same tax authority and there

is an ability to settle net.

At 31 December 2018 the Company had carried forward losses of £2,038k and was able to offset the

deferred tax asset recognised in respect of these losses (£346k) against its deferred tax

liabilities. However, the Company fully utilised the latter losses against its taxable profits in 2019, ensuring

that at 31 December 2019 it was not carrying forward any tax losses.

D.3.9 Valuation and Recognition of liabilities

The Company has no material liabilities arising as a result of leasing arrangements.

There are also no significant uncertainties regarding the timing or amounts of other liabilities.

There have been no changes made to the recognition and valuations bases, or estimates used, of other

liabilities during the reporting period.

There are no differences between the bases, methods and main assumptions used in the valuation for

solvency purposes and those used for valuation in the Financial Statements. Aside from assumptions used

for valuation models, as noted above, there are no significant assumptions or uncertainties regarding the

valuation of assets.

D.4 Alternative Methods for Valuation

D.4.1 Participation in related undertakings

Participation in related undertakings aggregate £nil and are not material to the Company’s balance

sheet and accordingly, are valued at net asset value.

D.4.2 Loans on policies and outstanding premiums

Loans on policies and outstanding premiums are valued for UK GAAP at amortised cost of £0.1m, and

this is not considered to be materially different to their fair value for Solvency II purposes.

D.5 Any Other Information

The coronavirus outbreak has resulted in a fall in asset values in 2020. The COVID-19 outbreak has not

had a material impact on liabilities. The Company remains well above its Solvency II Capital Coverage

Targets.

Page 67: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 67 of 77

E. CAPITAL MANAGEMENT

E.1 Own Funds

Capital is determined and monitored for the Company on the regulatory basis, as stipulated in the PRA

Rulebook. This primarily focused upon the Total Available Own Funds (“TAOF”) and the SCR”) of the

Company. The SCR was determined on a monthly basis and impact of market volatility monitored daily,

ensuring that adequate capital requirements are met. The Company’s capital position was formally

reviewed and approved on a quarterly basis by delegated authority from the Board to the management

and the solvency position monitored by ALCO). The Total Available Own Funds for year end 31 December

2019 were £284.5 (2018: £115.0m). The Company had an SCR of £53.8m at year end 2019 (2018: £64.6m),

with a Solvency Coverage Ratio of 467% (2018: 178%), which reflects the injection of capital received in

December 2019 ahead of the Equitable Life transfer. Following the acquisition of Equitable Life, the SCR

requirements of the Company increased from £53.8m to £171.4m. The EOF increased from £251.4m to

£309.2m, resulting in an estimated Solvency Coverage Ratio of 180%, as at 1 January 2020 for the

combined business.

The Capital Management Framework and risk appetite set out the Company’s approach for managing

Own Funds. The Company aims to maintain an appropriate buffer of capital resources over the

regulatory capital requirements. The Company projects over the five-year business planning period.

Solvency and liquidity levels are monitored on a regular basis, and are used to inform the dividend

capacity and the ability to service the subordinate debt. There have been no material changes over the

reporting period to the management of Own Funds.

The Company is required to hold capital at a level of financial resources that do not fall below a minimum

as determined in accordance with the PRA Regulations and EU Directives for insurance and other PRA-

regulated business. For the purposes of determining its regulatory capital, the Company uses the

Solvency II Standard Formula without adjustment. The appropriateness of the Standard Formula

approach has been reviewed by management and the Actuarial function and approved by the Board.

The capital of the Company comprises ordinary shares, loan capital and retained earnings. The loan

capital from the immediate parent company qualifies as Tier 2 capital under Solvency II.

On 16 December 2019, the Company increased its issued ordinary share capital from £30m to £142.6m,

and, on the same date, the Company repaid its £35m term loan facility from Utmost Holdings and new

debt of £60m was drawn down. The new loan, which matures on 9 December 2030, qualifies as Tier 2

capital under Solvency II reporting guidelines. This was in advance of the Part VII Transfer of business from

Equitable Life on 1 January 2020 to meet the increase in the Company’s regulatory capital obligations

arising therefrom.

Page 68: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 68 of 77

E.1.1 Description of Own Funds

The Company’s Own Funds are allocated to tiers, as set out in the Solvency II regulations.

Own Funds (£m) Tier

31

December

2019

31

December

2018

Paid in ordinary share capital 1 142.6 30.0

Surplus funds 1 18.4 18.2

Reconciliation reserve 1 63.5 34.5

Tier II capital 2 60.0 35.0

Total Available Own Funds 284.5 117.7

SCR Eligibility restrictions on Tier II capital (33.1) (2.7)

Eligible Own Funds to meet the SCR 251.4 115.0

Additional MCR Eligibility restrictions on Tier II capital (22.8) (28.1)

Eligible Own Funds to meet the MCR 228.5 86.9

The change in surplus funds and reconciliation reserves is set out in more detail in sections E.1.3 and E.1.4.

Ordinary share capital

The Company’s issued and fully paid ordinary share capital is treated as Tier 1 unrestricted Own Funds.

Surplus Funds

The PRA has set out a mandatory calculation of Surplus Funds for UK Solvency II firms to ensure consistency

across the industry1. For these funds, Surplus Funds should be calculated as the difference between the

assets in a with-profits fund (except those meeting liabilities in respect of non-profit insurance) and the

value of with-profit liabilities (including the value of any other liabilities properly attributable to that with-

profits fund).

With-profits Surplus Funds satisfy the characteristics of Tier 1 because they will only be distributed to

policyholders in the future if it is appropriate to do so and are loss-absorbent because future distributions

can be reduced if the amount of accumulated profits reduces due to future losses.

The PRA has specified that the default basis for the calculation of the value of with-profit liabilities (for the

purposes of Surplus Funds) is a retrospective (i.e. asset share) approach. However, where a retrospective

approach is impracticable or would not lead to a fair value of the liabilities, a prospective approach can

be used.

For WPSF1, asset share has been used in the calculation of Surplus Funds in line with the PRA calculation

and guidance. Where asset shares are not available, a proxy for the asset share is calculated by scaling

the BRV for each contract by the average increase in the asset shares that are available for the same

type of product and year of inception.

For WPSF2, 4 and 6, the Company does not maintain asset shares and, due to the treatment of FDB in

these funds, the PRA calculation of Surplus Funds results in a value of zero.

The Surplus Funds exist in the with-profit funds, which, under Solvency II Regulations, are subject to Ring

Fenced Fund (“RFF”) restriction. The Surplus Funds are therefore only available to meet losses arising within

the relevant with-profits fund. This limitation is taken into account by restricting the Own Funds of each

fund to the amount required to cover that fund’s BSCR.

1https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/supervisory-statement/2015/ss1315

Page 69: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 69 of 77

Subordinate liabilities

On 16 December 2019, the Company drew down a new £60m term loan facility and repaid the £35m

loan from its parent undertaking, Utmost Holdings. The loan, which matures on 16 December 2030,

qualifies as Tier 2 capital under Solvency II. Interest is paid at the rate of 7% pa and is payable biannually.

Early repayment is permitted with the consent of the PRA provided the Company’s Capital Management

Policy is maintained, which is:

(i) To seek to maintain Solvency Coverage Ratio cover of at least 135% at all times; and

(ii) To maintain Solvency Coverage Ratio of at least 150% immediately after the payment of a

dividend or the payment of interest under any regulatory capital instrument issued by the

Company.

E.1.2 Reconciliation reserve

The reconciliation reserve is a balancing item which ensures that the total Own Funds equal the excess

of assets which are available to absorb unexpected losses over liabilities. This reserve is used to reflect the

restrictions on the availability of Own Funds from ring-fencing (see below). It also includes any

‘foreseeable’ distributions or charges that would reduce the value of the Own Funds available to absorb

losses.

Eligibility restrictions of Own Funds

The following table details the restrictions on the Own Funds.

Own Funds (£m)

31 December

2019

With-Profits Surplus 17.8

Matching adjustment portfolio Own Funds in excess of SCR 0.4

Tier II capital restriction 33.1

Eligibility restriction 51.3

The Company’s WPSFs (WPSF1, 2, 4, and 6) and MA portfolios (NPF1 MA and NPF2 MA) are all treated as

ring-fenced for Pillar 1 valuation purposes. This means that Own Funds are restricted by the amount of

any surplus assets in excess of the notional SCR that exists within each of these RRFs.

The subordinate loan value exceeds the eligible Tier 2 limit for the coverage of the SCR and MCR under

the Solvency II rules. The eligible amount has therefore been restricted.

The following table sets out the capital requirements over the reporting period allowing for the eligibility

restrictions.

SII Pillar 1 Solvency (£ millions) 2019 2018 Change

Eligible Own Funds 251 115 136

SCR (54) (65) 11

Excess Available Capital 198 50 147

Solvency Ratio 467% 178% 289%

MCR (20) (21) 1

Unused Future Discretionary Benefit / Restricted surplus 37 25 12

Further details on the components of the capital requirements and potential volatility can be found in

section E.2 and in respect of asset liability matching in C2.2.

Page 70: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 70 of 77

E.1.3 Reconciliation between UK GAAP equity and Solvency II Own Funds

The differences between the Company’s UK GAAP and Solvency II valuations are quantified and

explained within section D. The following tables summarise those movements and determine the

difference in the Company’s UK GAAP equity and Solvency II Own Funds and the sources of those

differences.

E.2 Solvency Capital Requirement and Minimum Capital Requirement

E.2.1 SCR calculation and results

The Company uses the Standard Formula approach to calculate its SCR. The appropriateness of the

Standard Formula approach with respect to the Company’s risk profile has been reviewed by the Risk

Management and Actuarial functions and approved by the Board.

The SCR amount for the Company at 31 December 2019 has been calculated to be £53.8m.

SCR as at 31 December 2019 – (£m)

SCR Module 31/12/2018 31/12/2019

Life Underwriting 42.5 39.6

Market 76.9 68.8

Counterparty Default 4.4 3.7

Base SCR: Diversification (22.6) (23.4)

Base SCR 101.2 88.7

Operational 5.4 5.2

Loss Absorbency Adjustment (42.0) (40.1)

Total SCR 64.6 53.8

SII Pillar 1 Solvency (£ millions) 2019

2018

Change

UK GAAP Equity 157 36 121

Own Funds (Unrestricted) 303 134 169

SII Pillar 1 Solvency (£ millions) UK GAAP

Statutory Solvency II Change

Valuation of Assets 1,887 1,812 75

Valuation of Technical Provisions (1,567) (1,461) (106)

Subordinated Loan (60)

- (60)

Funds for future appropriations (71) - (71)

Valuation of other liabilities (32) (48) 16

Total Own Funds (unrestricted) 157 303 (146)

Fund Restriction

- (18) 18

Loan Restriction

- (33) 33

Own Funds 157 252 (95)

Page 71: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 71 of 77

The loss-absorbing capacity of Technical Provisions of £40.1m (as shown in S.25.01) arises from the

Company’s WPSFs, and reflects the ability of the Company to apply management actions in these sub-

funds under stress conditions. It also reflects the Company’s loss absorbing capacity of deferred tax

liability.

E.2.2 Simplifications used in the calculation of the SCR

For the lapse risk sub-module, the Company applies the Standard Formula stresses to persistency rates,

paid-up rates and take-up rates on GAOs. The most onerous stress (out of the permanent increase and

decrease to rates, and a mass lapse) is assessed at a product code level rather than at an individual

policy level. The Company does not consider that this simplification results in a material misstatement of

the lapse risk capital.

To calculate counterparty default risk capital, the Company uses a simplification to determine the risk-

mitigating effect of reinsurance, whereby the effect of removing reinsurance contracts at treaty level is

considered rather than counterparty. The resulting risk mitigation effect is spread across the reinsurance

counterparties in line with the base value of the reinsurance asset. The Company does not consider that

this simplification will have a material impact on the level of counterparty default risk capital held.

The Company does not use Company-specific parameters, pursuant to Article 104(7) of Directive

2009/138/EC.

E.2.3 MCR calculation and results

The Company’s MCR is calculated in line with the linear formula set out in the Solvency II Regulations.

The MCR amount for the Company as at 31 December 2019 has been calculated to be £20.3m. The

table below sets out the components of the MCR. The amounts include reinsurance recoverable and

liabilities.

Component Value (£m)

31 December 2018 31 December 2019

Technical Provision (Life, 1) 165.0 160.7

Technical Provision (Life, 2) 57.9 65.9

Technical Provision (Life, 3) 623.3 636.3

Technical Provision (Life, 4) 646.8 632.2

Capital at Risk 101.1 110.3

SCR 64.6 53.8

MCR 21.1 20.3

E.3 Use of the Duration-based Equity Sub-module in the Calculation of the Solvency Capital

Requirement

The Company did not make use of the duration-based equity sub-module in the calculation of the SCR.

E.4 Differences between the Standard Formula and any Internal Model used

An internal model is not used by the Company.

E.5 Non-compliance with the Minimum Capital Requirement and Non-compliance with the

Solvency Capital Requirement

The SCR and the MCR were complied with at all times during the reporting period. There is no expectation

of any future non-compliance by the Company.

Page 72: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 72 of 77

E.6 Any Other Information

The outbreak of COVID-19 is having a significant impact in the UK. The COVID-19 outbreak has also

caused a high degree of volatility in the financial markets.

The Company entered 2020 with a strong Balance Sheet and with a Solvency II coverage ratio in excess

of 180% as outlined in E.1. As at the date of approving this SFCR and related Quantitative Reporting

Templates (“QRTs”), whilst this Solvency ratio has fallen, mainly as a result of lower interest rates, it is still

comfortably well above required capital levels and we remain in a strong and resilient position, able to

meet our capital requirements.

Page 73: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 73 of 77

Appendix A: Valuation Basis

Details of assumptions which are significant for the Company for Solvency II reporting are provided

below.

INTEREST RATE TERM STRUCTURE

The Company uses the unadjusted EIOPA term structure for the UK for all lines of business. For business

which is in its Matching Adjustment MA portfolios, the EIOPA curve is uplifted by the appropriate MA rate,

as shown in section D.2.3. The MA portfolio are:

The non-profit annuities in-payment in Non-Profit Fund 1 (I1”); and

The funeral plan business in Non-Profit Fund 2 (“MA2”).

INFLATION

Inflation is a significant assumption for the Company because it impacts the value of the projected

expenses as well as benefits which are linked to inflation, including inflation-linked annuities in-payment

and funeral plans. The inflation assumption used by the Company at year end 2019 was 3.12%.

Appropriate allowance is also made to reflect the difference between earnings and price inflation.

MORTALITY

Assurances

For contracts where differential rates were offered to smokers and non-smokers, the appropriate versions

of the standard tables have been used.

Different percentages of standard tables, ELT16 and AC00 ranging from 50% to 130% (50% to 130% at

yearend 2017) are used depending upon the risk group.

Industrial Branch conventional non-profit contracts are adjusted to allow for ‘gone-aways’. These arise

where the policyholder is no longer aware of the policy's existence (and may have already died) and

where it is not practical to trace the policyholder (or next-of-kin). All Industrial Branch conventional

contracts where the policyholder is aged over 100 are excluded. Reduction factors are applied to the

remaining non-profit contracts.

Annuities

All mortality tables use the gender-specific PCA00 tables for males and females.

Different percentages of standard tables, PCA00 ranging from 80% to 180% (90% to 180% at year-end

2017), are used depending upon the risk group.

The Company has adopted the CMI 2018 mortality improvement factors published by the Institute of

Actuaries in 2019 for the valuation of annuity liabilities at year end 2019.

EXPENSES

The table below shows the unit cost assumptions for the NPF. The expenses for WPSF1, WPSF2, WPSF4 and

WPSF6 are governed by the Scheme of Arrangement, as described in the Company’s PPFM. These unit

costs are weighted depending on individual products, based on the amount of resources required to

administer the particular products.

Unit Cost Assumptions (£m) 2019

Renewal Expenses: Premium Paying 53.25

Renewal Expenses: Paid Up 45.26

Claim Expenses -

Page 74: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 74 of 77

OPTIONS AND GUARANTEES

In NPF and WPSF6 there are a number of unit-linked and with-profits pension contracts, respectively,

where the unit fund may be converted to an annuity on guaranteed terms. The Company uses

policyholder fund value dependent take-up rates, which vary between 25% and 60% (year end 2018:

25% and 60%).

LAPSE ASSUMPTIONS

The Company’s lapse assumptions are set using historic experience, with the lapse rates rounded to the

nearest 0.5%. The rates vary by product, ranging from 0% to 7.5% (year end 2018: 0% to 7.5%).

Page 75: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 75 of 77

Appendix B: Quantitative Reporting Templates

The following pages contain QRTs for the Company.

All figures are presented in thousands of pounds with the exception of ratios that are in decimal. Please

note that totals may differ from the component parts due to rounding. All items disclosed are consistent

with the information provided privately to the Regulators.

The following QRTs are provided:

S.02.01.02: Balance sheet information.

S.05.01.02: Information on premiums, claims and expenses.

S.23.01.01: Information on Own Funds.

S.25.01.21: Information on the SCR, calculated using the Standard Formula.

S.28.01.01: Specifying information on the MCR for insurance.

S.12.01.02: Information on the Technical Provisions relating to life insurance and health insurance.

S.22.01.21: Information on the impact of long-term guarantees and transitional measure

Page 76: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 76 of 77

GLOSSARY OF TERMS

AFR Available Financial Resources

ALCo Asset and Liability Committee

ALM Asset and Liability Management

AMC Annual Management Charge

AVIF Acquired Value In-Force

BEL Best Estimate Liability

bps basis points

BRV Bonus Reserve Value

BSCR Basic Solvency Capital Rate

CF Certification Function

CMS Capital Management Strategy

DB Defined Benefit

ECAI External Credit Assessment Institution

EIOPA European Insurance and Occupational Pensions Authority

EOF Eligible Own Funds

EPIFP Expected Profit in Future Premium

EU European Union

ExCo Executive Committee

FCA Financial Conduct Authority

FCOGC Fair Customer Outcomes Governance Committee

FDB Future Discretionary Benefits

FRS Financial Reporting Standard under UK GAAP

FVPC Fair Value Pricing Committee

GAAP Generally Accepted Accounting Principles

GAO Guaranteed Annuity Option

GDPR General Data Protection Regulation

HRG Homogeneous Risk Group

IAS International Accounting Standard

IFRIC International Financial Reporting Interpretations Committee

IFRS International Financial Reporting Standard

KF Key Function

KFP Key Function Person

KRI Key Risk Indicator

MA Matching Adjustment

MCR Minimum Capital Requirement

NNED Notified Non-Executive Director

NPF Non-Profit Fund

ORSA Own Risk and Solvency Assessment

OTC Over the Counter

PPFM Principles and Practices of Financial Management

PRA Prudential Regulation Authority

Page 77: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and Pensions Limited | Solvency and Financial Condition Report 2019 Page 77 of 77

QRT Quantitative Reporting Template

RFF Ring Fenced Fund

RIDCo Regulatory and Industry Development Committee

RMF Risk Management Framework

RMIS RMIS (RTW) Limited – formerly Reliance Mutual Life Insurance Society Limited

SCR Solvency Capital Requirement

SFCR Solvency and Financial Condition Report

SM&CR Senior Managers and Certification Regime

SMC Senior Management Committee

SMF Senior Management Function

TMTP Transitional Measure on Technical Provisions

TP Technical Provisions

Utmost Life and

Pensions Utmost Life and Pensions Limited(“the Company”)

Utmost Holdings Utmost Life and Pensions Holdings Limited

Utmost Services Utmost Life and Pensions Services Limited

WPSF1 With Profits Sub-Fund 1

WPSF2 With Profits Sub-Fund 2

WPSF4 With Profits Sub-Fund 4

WPSF6 With Profits Sub-Fund 6

Page 78: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

Utmost Life and

Pensions

Solvency and Financial

Condition Report

Disclosures

31 December

2019

(Monetary amounts in GBP thousands)

Page 79: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

General information

Undertaking name Utmost Life and Pensions

Undertaking identification code 213800I1ZCFT62P9P534

Type of code of undertaking LEI

Type of undertaking Life undertakings

Country of authorisation GB

Language of reporting en

Reporting reference date 31 December 2019

Currency used for reporting GBP

Accounting standards Local GAAP

Method of Calculation of the SCR Standard formula

Matching adjustment Use of matching adjustment

Volatility adjustment No use of volatility adjustment

Transitional measure on the risk-free interest rate No use of transitional measure on the risk-free interest rate

Transitional measure on technical provisions Use of transitional measure on technical provisions

List of reported templates

S.02.01.02 - Balance sheet

S.05.01.02 - Premiums, claims and expenses by line of business

S.12.01.02 - Life and Health SLT Technical Provisions

S.22.01.21 - Impact of long term guarantees measures and transitionals

S.23.01.01 - Own Funds

S.25.01.21 - Solvency Capital Requirement - for undertakings on Standard Formula

S.28.01.01 - Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity

Page 80: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

S.02.01.02

Balance sheet

Solvency II

value

Assets C0010

R0030 Intangible assets

R0040 Deferred tax assets

R0050 Pension benefit surplus

R0060 Property, plant & equipment held for own use 3,602

R0070 Investments (other than assets held for index-linked and unit-linked contracts) 1,125,468

R0080 Property (other than for own use) 0

R0090 Holdings in related undertakings, including participations 0

R0100 Equities 4,425

R0110 Equities - listed

R0120 Equities - unlisted 4,425

R0130 Bonds 997,217

R0140 Government Bonds 459,929

R0150 Corporate Bonds 537,289

R0160 Structured notes 0

R0170 Collateralised securities 0

R0180 Collective Investments Undertakings 106,349

R0190 Derivatives 17,165

R0200 Deposits other than cash equivalents 312

R0210 Other investments 0

R0220 Assets held for index-linked and unit-linked contracts 644,110

R0230 Loans and mortgages 676

R0240 Loans on policies 676

R0250 Loans and mortgages to individuals

R0260 Other loans and mortgages

R0270 Reinsurance recoverables from: -34,457

R0280 Non-life and health similar to non-life 0

R0290 Non-life excluding health

R0300 Health similar to non-life

R0310 Life and health similar to life, excluding index-linked and unit-linked -34,457

R0320 Health similar to life 0

R0330 Life excluding health and index-linked and unit-linked -34,457

R0340 Life index-linked and unit-linked 0

R0350 Deposits to cedants 0

R0360 Insurance and intermediaries receivables 198

R0370 Reinsurance receivables 319

R0380 Receivables (trade, not insurance) 10,647

R0390 Own shares (held directly)

R0400 Amounts due in respect of own fund items or initial fund called up but not yet paid in 0

R0410 Cash and cash equivalents 61,771

R0420 Any other assets, not elsewhere shown

R0500 Total assets 1,812,334

Page 81: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

S.02.01.02

Balance sheet

Solvency II

value

Liabilities C0010

R0510 Technical provisions - non-life 0

R0520 Technical provisions - non-life (excluding health) 0

R0530 TP calculated as a whole

R0540 Best Estimate

R0550 Risk margin

R0560 Technical provisions - health (similar to non-life) 0

R0570 TP calculated as a whole

R0580 Best Estimate

R0590 Risk margin

R0600 Technical provisions - life (excluding index-linked and unit-linked) 824,698

R0610 Technical provisions - health (similar to life) 310

R0620 TP calculated as a whole 285

R0630 Best Estimate 26

R0640 Risk margin 0

R0650 Technical provisions - life (excluding health and index-linked and unit-linked) 824,388

R0660 TP calculated as a whole 0

R0670 Best Estimate 801,578

R0680 Risk margin 22,809

R0690 Technical provisions - index-linked and unit-linked 635,933

R0700 TP calculated as a whole 635,471

R0710 Best Estimate 462

R0720 Risk margin 0

R0740 Contingent liabilities

R0750 Provisions other than technical provisions 1,688

R0760 Pension benefit obligations 3,269

R0770 Deposits from reinsurers 5,812

R0780 Deferred tax liabilities 14,242

R0790 Derivatives 0

R0800 Debts owed to credit institutions

R0810 Financial liabilities other than debts owed to credit institutions

R0820 Insurance & intermediaries payables 8,964

R0830 Reinsurance payables 594

R0840 Payables (trade, not insurance) 14,448

R0850 Subordinated liabilities 0

R0860 Subordinated liabilities not in BOF

R0870 Subordinated liabilities in BOF 0

R0880 Any other liabilities, not elsewhere shown

R0900 Total liabilities 1,509,647

R1000 Excess of assets over liabilities 302,687

Page 82: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

S.05.01.02

Life

Health

insurance

Insurance with

profit

participation

Index-linked

and unit-linked

insurance

Other life

insurance

Annuities

stemming from

non-life insurance

contracts and

relating to health

insurance

obligations

Annuities

stemming from

non-life insurance

contracts and

relating to

insurance

obligations other

than health

insurance

obligations

Health

reinsurance

Life

reinsurance

C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0300

Premiums written

R1410 Gross 43 871 3,444 8,070 12,428

R1420 Reinsurers' share 11 5 80 19,179 19,276

R1500 Net 32 866 3,363 -11,110 -6,848

Premiums earned

R1510 Gross 43 871 3,444 8,070 12,428

R1520 Reinsurers' share 11 5 80 19,179 19,276

R1600 Net 32 866 3,363 -11,110 -6,848

Claims incurred

R1610 Gross 5 20,960 54,627 42,983 118,575

R1620 Reinsurers' share 2 788 70 17,176 18,036

R1700 Net 2 20,172 54,557 25,807 100,539

Changes in other technical provisions

R1710 Gross 0

R1720 Reinsurers' share 0

R1800 Net 0 0 0 0 0

R1900 Expenses incurred 2 1,215 5,784 2,808 9,808

R2500 Other expenses 3,432

R2600 Total expenses 13,241

Premiums, claims and expenses by line of business

Line of Business for: life insurance obligations Life reinsurance obligations

Total

Page 83: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

S.12.01.02

Life and Health SLT Technical Provisions

Contracts

without

options and

guarantees

Contracts with

options or

guarantees

Contracts

without

options and

guarantees

Contracts with

options or

guarantees

Contracts

without

options and

guarantees

Contracts

with options

or

guarantees

C0020 C0030 C0040 C0050 C0060 C0070 C0080 C0090 C0100 C0150 C0160 C0170 C0180 C0190 C0200 C0210

R0010 Technical provisions calculated as a whole 0 635,471 0 635,471 285 285

R0020

Total Recoverables from reinsurance/SPV and Finite Re after

the adjustment for expected losses due to counterparty default

associated to TP calculated as a whole 0 0 0 0 0 0

Technical provisions calculated as a sum of BE and RM

Best estimate

R0030 Gross Best Estimate 220,554 2 916 561,897 46,855 830,224 37 12 49

R0080

Total Recoverables from reinsurance/SPV and Finite Re after

the adjustment for expected losses due to counterparty default -6,183 0 0 -34,922 6,649 -34,457 0 0 0

R0090Best estimate minus recoverables from reinsurance/SPV

and Finite Re226,738 2 916 596,819 40,206 864,681 37 12 49

R0100 Risk margin 571 39 25,203 25,813 2 2

Amount of the transitional on Technical Provisions

R0110 Technical Provisions calculated as a whole 0 0 0 0 0 0

R0120 Best estimate -116 -1 -455 -6,689 -20,923 -28,185 -18 -5 -24

R0130 Risk margin -571 -39 -2,394 -3,004 -2 -2

R0200 Technical provisions - total 220,438 635,933 603,949 1,460,320 310 310

Health insurance (direct business)

Annuities

stemming from

non-life

insurance

contracts and

relating to

health

insurance

obligations

Health

reinsurance

(reinsurance

accepted)

Total (Health

similar to life

insurance)

Insurance

with profit

participation

Index-linked and unit-linked insurance Other life insurance Annuities

stemming from

non-life

insurance

contracts and

relating to

insurance

obligation other

than health

insurance

obligations

Accepted

reinsurance

Total

(Life other

than health

insurance,

including

Unit-Linked)

Page 84: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

S.22.01.21

Impact of long term guarantees measures and transitionals

Amount with

Long Term

Guarantee

measures and

transitionals

Impact of

transitional on

technical

provisions

Impact of

transitional on

interest rate

Impact of

volatility

adjustment

set to zero

Impact of

matching

adjustment

set to zero

C0010 C0030 C0050 C0070 C0090

R0010 Technical provisions 1,460,631 31,214 0 0 47,539

R0020 Basic own funds 284,454 -31,180 0 0 -47,124

R0050 Eligible own funds to meet Solvency Capital Requirement 251,348 -31,174 0 0 -35,372

R0090 Solvency Capital Requirement 53,790 12 0 0 23,505

R0100 Eligible own funds to meet Minimum Capital Requirement 228,518 -31,180 0 0 -46,925

R0110 Minimum Capital Requirement 20,324 0 0 0 997

Page 85: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

S.23.01.01

Own Funds

Basic own funds before deduction for participations in other financial sector as foreseen in article 68 of Delegated Regulation 2015/35 TotalTier 1

unrestricted

Tier 1

restrictedTier 2 Tier 3

C0010 C0020 C0030 C0040 C0050

R0010 Ordinary share capital (gross of own shares) 142,602 142,602 0

R0030 Share premium account related to ordinary share capital 0 0 0

R0040 Initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings 0 0 0

R0050 Subordinated mutual member accounts 0 0 0 0

R0070 Surplus funds 18,417 18,417

R0090 Preference shares 0 0 0 0

R0110 Share premium account related to preference shares 0 0 0 0

R0130 Reconciliation reserve 63,434 63,434

R0140 Subordinated liabilities 0 0 0 0

R0160 An amount equal to the value of net deferred tax assets 0 0

R0180 Other own fund items approved by the supervisory authority as basic own funds not specified above 60,000 0 0 60,000 0

R0220 Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds 0

R0230 Deductions for participations in financial and credit institutions 0 0 0 0

R0290 Total basic own funds after deductions 284,454 224,454 0 60,000 0

Ancillary own funds

R0300 Unpaid and uncalled ordinary share capital callable on demand 0

R0310 Unpaid and uncalled initial funds, members' contributions or the equivalent basic own fund item for mutual and mutual - type undertakings, callable on demand 0

R0320 Unpaid and uncalled preference shares callable on demand 0

R0330 A legally binding commitment to subscribe and pay for subordinated liabilities on demand 0

R0340 Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC 0

R0350 Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC 0

R0360 Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0

R0370 Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0

R0390 Other ancillary own funds 0

R0400 Total ancillary own funds 0 0 0

Available and eligible own funds

R0500 Total available own funds to meet the SCR 284,454 224,454 0 60,000 0

R0510 Total available own funds to meet the MCR 284,454 224,454 0 60,000

R0540 Total eligible own funds to meet the SCR 251,348 224,454 0 26,895 0

R0550 Total eligible own funds to meet the MCR 228,518 224,454 0 4,065

R0580 SCR 53,790

R0600 MCR 20,324

R0620 Ratio of Eligible own funds to SCR 467.28%

R0640 Ratio of Eligible own funds to MCR 1124.39%

Reconcilliation reserve C0060

R0700 Excess of assets over liabilities 302,687

R0710 Own shares (held directly and indirectly) 0

R0720 Foreseeable dividends, distributions and charges

R0730 Other basic own fund items 221,019

R0740 Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds 18,233

R0760 Reconciliation reserve 63,434

Expected profits

R0770 Expected profits included in future premiums (EPIFP) - Life business 8,480

R0780 Expected profits included in future premiums (EPIFP) - Non- life business

R0790 Total Expected profits included in future premiums (EPIFP) 8,480

Page 86: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

S.25.01.21

Solvency Capital Requirement - for undertakings on Standard Formula

Gross solvency

capital requirementUSP Simplifications

C0110 C0090 C0120

R0010 Market risk 68,761

R0020 Counterparty default risk 3,697

R0030 Life underwriting risk 39,525 9 Lapse risk

R0040 Health underwriting risk 132 9 Lapse risk

R0050 Non-life underwriting risk 0 9

R0060 Diversification -23,399

R0070 Intangible asset risk 0

R0100 Basic Solvency Capital Requirement 88,715

Calculation of Solvency Capital Requirement C0100

R0130 Operational risk 5,188

R0140 Loss-absorbing capacity of technical provisions -29,078

R0150 Loss-absorbing capacity of deferred taxes -11,035

R0160 Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC 0

R0200 Solvency Capital Requirement excluding capital add-on 53,790

R0210 Capital add-ons already set 0

R0220 Solvency capital requirement 53,790

Other information on SCR

R0400 Capital requirement for duration-based equity risk sub-module 0

R0410 Total amount of Notional Solvency Capital Requirements for remaining part 11,973

R0420 Total amount of Notional Solvency Capital Requirements for ring fenced funds 1,061

R0430 Total amount of Notional Solvency Capital Requirements for matching adjustment portfolios 40,756

R0440 Diversification effects due to RFF nSCR aggregation for article 304 0

Approach to tax rate C0109

R0590 Approach based on average tax rate 0

Calculation of loss absorbing capacity of deferred taxesLAC DT

C0130

R0640 LAC DT 0

R0650 LAC DT justified by reversion of deferred tax liabilities 0

R0660 LAC DT justified by reference to probable future taxable economic profit 0

R0670 LAC DT justified by carry back, current year 0

R0680 LAC DT justified by carry back, future years 0

R0690 Maximum LAC DT 0

USP Key

For life underwriting risk:

1 - Increase in the amount of annuity

benefits

9 - None

For health underwriting risk:

1 - Increase in the amount of annuity

benefits

2 - Standard deviation for NSLT health

premium risk

3 - Standard deviation for NSLT health gross

premium risk

4 - Adjustment factor for non-proportional

reinsurance

5 - Standard deviation for NSLT health

reserve risk

9 - None

For non-life underwriting risk:

4 - Adjustment factor for non-proportional

reinsurance

6 - Standard deviation for non-life

premium risk

7 - Standard deviation for non-life gross

premium risk

8 - Standard deviation for non-life

reserve risk

9 - None

Page 87: Utmost Life and Pensions Limited · Utmost Life and Pensions by a Part VII Transfer under the Financial Services and Markets Act 2000 (“the Transfer”). On 1 January 2020, the

S.28.01.01

Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity

Linear formula component for non-life insurance and reinsurance obligations C0010

R0010 MCRNL Result 0

Net (of

reinsurance/SPV) best

estimate and TP

calculated as a whole

Net (of reinsurance)

written premiums in

the last 12 months

C0020 C0030

R0020 Medical expense insurance and proportional reinsurance

R0030 Income protection insurance and proportional reinsurance

R0040 Workers' compensation insurance and proportional reinsurance

R0050 Motor vehicle liability insurance and proportional reinsurance

R0060 Other motor insurance and proportional reinsurance

R0070 Marine, aviation and transport insurance and proportional reinsurance

R0080 Fire and other damage to property insurance and proportional reinsurance

R0090 General liability insurance and proportional reinsurance

R0100 Credit and suretyship insurance and proportional reinsurance

R0110 Legal expenses insurance and proportional reinsurance

R0120 Assistance and proportional reinsurance

R0130 Miscellaneous financial loss insurance and proportional reinsurance

R0140 Non-proportional health reinsurance

R0150 Non-proportional casualty reinsurance

R0160 Non-proportional marine, aviation and transport reinsurance

R0170 Non-proportional property reinsurance

Linear formula component for life insurance and reinsurance obligations C0040

R0200 MCRL Result 20,324

Net (of

reinsurance/SPV) best

estimate and TP

calculated as a whole

Net (of

reinsurance/SPV) total

capital at risk

C0050 C0060

R0210 Obligations with profit participation - guaranteed benefits 160,689

R0220 Obligations with profit participation - future discretionary benefits 65,932

R0230 Index-linked and unit-linked insurance obligations 636,303

R0240 Other life (re)insurance and health (re)insurance obligations 632,163

R0250 Total capital at risk for all life (re)insurance obligations 110,287

Overall MCR calculation C0070

R0300 Linear MCR 20,324

R0310 SCR 53,790

R0320 MCR cap 24,205

R0330 MCR floor 13,447

R0340 Combined MCR 20,324

R0350 Absolute floor of the MCR 3,187

R0400 Minimum Capital Requirement 20,324